Business Economics

Business Economics 2012

Table of Contents

Q1) Explain (using example) the law of diminishing marginal productivity (DMP). Also, explain the difference between the law of DMP and law of returns to scale............................................................. 3 Q2) Explain how profit maximizing output is determined in a .............................................................. 9 a) b) c) Perfect competitive market ............................................................................................................. 9 Monopoly ........................................................................................................................................ 9 Monopolistic market ....................................................................................................................... 9

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Business Economics 2012

Q1) Explain (using example) the law of diminishing marginal productivity (DMP). Also, explain the difference between the law of DMP and law of returns to scale.

A. The law of diminishing marginal productivity states that if one input in the production of the commodity is increased while other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively small or diminishing increase in output. The production function is a mathematical expression which relates the quantity of factor inputs to the quantity of outputs that result in three measures total product, marginal product and average product. The law of DMP is reflected in the shapes and slopes of the total product, marginal product and average product curve. For e.g. consider the production of Super Deluxe Texmex gargantuan tacos. The table represents the hourly production of G tacos as Waldo’s Texmex taco world employs different quantities of labour, the key variable input for short run taco production.

Labour 0 1 2 3 4 5 6 7 8 9 10 Total Product 0 20 50 75 95 110 120 125 125 120 110 Marginal Product 20 20 25 20...