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5.1 J16: a) law of diminishing marginal productivity - short and long run
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5.1 J16: a) law of diminishing marginal productivity - short and long run
b) why do costs decrease when productivity of labour increases and vice versa?
c) factors increasing economies and diseconomies of scale
a)
law of diminishing marginal returns - marginal product of input decreases as quantity input increases - the reason why marginal physical labour decreases
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short run - the period of time over which at least one factor is fixed
long run - a period of time long enough for factors of production to all be variable
diminishing marginal returns occurs in the short run because of the fixed element present in the short run
if the variable factor is increased, there will come a point where it will become less production and lead to a decreasing MP and AP
due to the fixed element. extra workers will get in each other's way as they attempt to increase production ex. having 1 coffee machine in a coffee shop and 4 baristas
due to law of diminishing marginal returns:
relationship of TP and MPL - MPL falls, TP less steep
b)
this is bc of economies of scale:
economies of scale - cost per unit output (AC) falls as quantity produced increases (and vice versa)
economies of scale - a reduction in LRAC as output increases
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can be divided into internal and external:
internal - adv that arise as a result of the growth of the firm
external - advantaged firms can gain as a result of growth in industry - normally associated with particular area
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c)
economies of scale
internal
risk bearing - risk is spread into opportunity cost as company grows, diversification, by products etc.
financial - economies of scope - when increasing the range of products produced reduces the cost of producing each one
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technical - specialization, indivisibility of plant, principle of multiples, increased dimensions of containers
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purchasing/ commercial - large companies = buying raw materials in bulk
may set higher prices bc of high market power
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diseconomies of scale
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coordination - gets difficult as u get larger - may have hold-ups
coordinating across the globe - complex interrelationships
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