What is the law of diminishing returns? Why is this proposition called a "law"?
What will be an ideal response?
The law of diminishing returns states that as a firm uses more of a variable factor, with a given quantity of fixed factors, the marginal product of the variable factor eventually decreases. This proposition is called a "law" because there is no case where adding more labor, capital, materials, fuel or any other variable factor will cause output to increase indefinitely. Eventually, adding any variable factor to some fixed factor will lead to smaller and smaller additions to output. If the law of diminishing returns did not always hold true, farmers could grow the entire world's supply of food on one acre of land, by just adding more water and more fertilizer (variable factors) to the acre (the fixed factor).
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Are stocks and bonds considered part of the investment component of GDP?
What will be an ideal response?
The supply-side effects show that a tax cut on labor income ________ employment and ________ potential GDP
A) increases; increases B) increases; does not change C) increases; decreases D) decreases; increases E) decreases; decreases
A monopolist faces a demand curve that
A) is perfectly horizontal at the market price. B) is below the marginal revenue curve. C) is downward sloping. D) coincides with the industry supply.
The relationship between the overall price level in the economy and total production by firms is shown in the:
A. aggregate demand curve. B. aggregate supply curve. C. inflation rate. D. business cycle.