Question

Most firms will eventually face increasing average costs as they try to increase output. The firm finds that each extra unit of output requires more inputs to produce than previous units, an outcome described as the law of diminishing marginal returns. The law of diminishing marginal returns states that as you try to expand output, your marginal productivity (the extra output associated with extra inputs) eventually declines The law of diminishing returns can limit the economies of scale and economies of scope a firm can achieve. How is the law of diminishing marginal returns related to the boundaries of a firm? What factors can cause diminishing marginal returns to occur?

Answer 1

O The law of diminishing maninal betunns de es not imply that the aditional unit decheases total phoduction, but this i's usually the hesult, The law of diminishing betunns is not fundamental phinciple of economies, only it also plays a Starhing bole in phoductior theohy. Phoductor theony is the Study of the economic phocess of eonven ting inputs into outputs . but What factons Can Cause diminishing belunns to manginal Occun 1. fixed facton of phoduction e- All factons of abe land, Labouh, Caital on Phoduction enter boise Cannot be incheased eveny time, we know that phoduction 18 the hesuzt Of thre effective Combinatton O.f factons of phoducttien, It Cebtain facten becomes fieed, the adjustment e phoduction will not incheasing bates diminishing betünns witl of factor of inchease at and thus Law of apply.

2. Scance factons;- In Case ef Centain factons especiany Land which is i7self limited Cannot be incheased the Law of diminishing betuhi will apply. It may also factors of bhoduction, happen in case of othen 3. Lack ef penfect Substitutes:- One factob of phoduction cannot be Subetituted for anotheb facteh. Substituted fen every factoh of Phoductien is not absence of always available. In the Substitute, the law of diminishing Such betubns will apply.