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Economics FROM 4 ART

CHAPTER 1 : ECONOMICS OF SCALE

IMPORTANCE OF THE LAW OF DIMINISHING RETURNS
  • It shows how cost of production vary with change in output when one factors is fixed.
  • It shows how producers substitute one factor of production from the other when the relative price of factors changes and marginal productivity remains unchanged.
  • When the producer is exprecing, increasing returns to the variety factor, more of the variable factor should be added.
  • The law explains why more capital is combined with a given amount of goods in different countries
  • It experiences decreasing return to be variable factor less variable factor should be used.
par Claude Foumtum