When the marginal product of an input declines as the quantity of that input increases, the production function exhibits A. increasing marginal product. B. diminishing marginal product. C. diminishing total product. D. Both b and c are correct.

Question

Business

Victor Stevenson

9 July, 11:49

When the marginal product of an input declines as the quantity of that input increases, the production function exhibits A. increasing marginal product. B. diminishing marginal product. C. diminishing total product. D. Both b and c are correct.

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Answers (1)

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Penelope Soto · Answer 1

The correct answer is b. diminishing marginal product.

Explanation:

The "psychological law" that would explain the principle of diminishing marginal utility, allows to establish a relationship between price and quantity demanded of a good, of which the curve is the graphic expression, but it is not enough for the determination of the price that is going to be established "effectively", as well as the determination of the quantities bought and sold at that price.

To suppress indeterminacy, it can be assumed, as Marshall does, that the quantity offered is given - that is, sellers bring all their production to the market - and that the price is "adjusted" so that it can be sold completely.

It is said that there is "balance" because individuals, buyers and sellers, fulfill their plans. However, although it is true that buyers-consumers maximize their utility - by the very definition of demand - the case of sellers-producers is, in this case, less clear since they do not really have to choose; however, it can be considered that the proposed amount (qe) does not come from chance but rather from a "thought" decision. In this way Marshall introduces a periodization in his analysis of the offer that is presented in the very short term but that can vary in the short, medium and long term, given the availability of both work, machines and materials premiums such as existing production capacities - in "heavy" premises and materials - with the necessary adjustment deadlines, which may be more or less long. We will not stop on how to make the cuts in time, which in any case implies serious theoretical problems; we will be content to address the supply problem as we had done with the demand; that is to say, considering a type individual, the "producer" or the "company" whose objective is the maximization of the benefit while the purpose of the other individual, the "consumer", is to remember it, to maximize the utility.