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ENGR 3360U Winter 2012 Unit 2.1.4: Microeconomics: Law of Diminishing Returns

This document discusses microeconomic concepts including: 1) The law of diminishing returns, which states that when at least one input is held constant while others increase, the rate of extra output will eventually decline. 2) An example of a farmer who sees diminishing returns from adding more workers to his farm. 3) The concept of increasing returns to scale, where increasing all inputs can increase total productivity due to economies of scale.

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40 views7 pages

ENGR 3360U Winter 2012 Unit 2.1.4: Microeconomics: Law of Diminishing Returns

This document discusses microeconomic concepts including: 1) The law of diminishing returns, which states that when at least one input is held constant while others increase, the rate of extra output will eventually decline. 2) An example of a farmer who sees diminishing returns from adding more workers to his farm. 3) The concept of increasing returns to scale, where increasing all inputs can increase total productivity due to economies of scale.

Uploaded by

sunnyopg
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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ENGR 3360U Winter 2012

Unit 2.1.4
Microeconomics: Law of Diminishing Returns
Dr. J. Michael Bennett, P. Eng., PMP,
UOIT,
Version 2014-I-01

Unit 2.1 Introduction to Microeconomics

Change Record
2014-I-01 Initial Creation

2.1-2

2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

2.1.4 Law of Diminishing Returns


for any productive enterprise, when at least
1 input is held constant while other inputs
are increased, there will be an eventual
decline in the rate of extra output

2.1-3

2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Farmer Example
Farmer Fred has 10 acres. He can harvest 1000 bushels of wheat
himself. By adding more workers, he can increase production.
The following table illustrates the LODR.

2.1-4

YEAR

# of WORKERS

PRODUCTION

1000

2000

1000

2800

800

3400

600

3800

400

3900

100

3900

2014-I-01

DELTA

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Inverted U-Curve (Malcom Gladwell)


# of glasses of wine/week vs. life expectancy

2.1-5

2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Farmer Example
Farmer Fred has 10 acres. He can harvest 1000 bushels of wheat
himself. By adding more workers and ADD more land,, he can
increase production. The following table illustrates the LOIR2S.

2.1-6

YEAR

LAND

# of WORKERS

PRODUCTION

10

1000

20

2000

1000

30

3200

1200

40

4600

1400

50

6200

1600

60

8000

1800

70

10000

2000

2014-I-01

DELTA

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

Unit 2.1 Introduction to Microeconomics

Law of Increasing Returns to Scale


If ALL inputs are increased, economies of
scale will increase total productivity.

2.1-7

2014-I-01

Dr. J.M. Bennett, P.Eng., PMP ENGR 3360U Eng Eco

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