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True or false. The U shape of the long-run ATC curve is the result of diminishing returns?
Wiki User
∙ 8y ago
False
Wiki User
∙ 8y ago
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Why does the average cost curve fall at the initial stage then rise again?
The average cost curve fall at the initial stage due to increasing returns on variable factors of production. It then rises due to diminishing returns, which causes costs Êto rise.
Why avc curve U shape?
Overall because of diminishing marginal returns. The marginal cost curve, MC, decreases until diminishing marginal returns set in and and it begins to increase. When the MC is below the AVC, the AVC must fall. When the MC is above the AVC, the AVC must rise. In otherwords, if the marginal cost is decreasing the average cost must be decreasing as well and vice versa.
What does a marginal utillity curve shows?
It shows how much utility you would get for each unit of consumption. It has a positive slope that decreases as the unit of consumption increases due to the law of diminishing returns.
Why does the production possibility curve decrease at increasing rate?
As more inputs of production are switched from the production of one good to another, their marginal output is decreasing (see: diminishing returns to capital).
How does the principle of diminishing marginal utility explain the slope of the demand curve?
The principle of diminishing marginal utility explains the slope of the demand curve by letting us be able to see which direction the slope is in, which is always downward.
Why is the production possibility curve bowed out from the origin of the curve?
Diminishing Marginal returns to capital and labor.
Why is A nation's production possibilities curve is bowed out from the origin?
When there are diminishing marginal returns to factors of production, the PPF is "bowed out" from the origin.
Why does the average cost curve fall at the initial stage then rise again?
The average cost curve fall at the initial stage due to increasing returns on variable factors of production. It then rises due to diminishing returns, which causes costs Êto rise.
Why avc curve U shape?
Overall because of diminishing marginal returns. The marginal cost curve, MC, decreases until diminishing marginal returns set in and and it begins to increase. When the MC is below the AVC, the AVC must fall. When the MC is above the AVC, the AVC must rise. In otherwords, if the marginal cost is decreasing the average cost must be decreasing as well and vice versa.
What does a marginal utillity curve shows?
It shows how much utility you would get for each unit of consumption. It has a positive slope that decreases as the unit of consumption increases due to the law of diminishing returns.
Why does the production possibility curve decrease at increasing rate?
As more inputs of production are switched from the production of one good to another, their marginal output is decreasing (see: diminishing returns to capital).
Law of diminishing returns?
The law of diminishing returns specially applies to agriculture and other extractive industries. One thing that is common to all these industries is the supremacy of nature. It is therefore often remarked that the part that nature plays in production corresponds to diminishing returns and the part which man plays confirms to the law of increasing returns. The reason is that, nature where it is supreme is subject to diminishing returns, while industry where man is supreme, is subject to increasing return. Besides the supremacy of nature, there are several other reasons why agriculture is subject to the law of diminishing returns.The agricultural operations are spread out over a wide area, and supervision cannot be very effective. Scope for the use of specialized machinery is also very limited. Therefore economics of large scale production cannot be reaped.
How does the principle of diminishing marginal utility explain the slope of the demand curve?
The principle of diminishing marginal utility explains the slope of the demand curve by letting us be able to see which direction the slope is in, which is always downward.
What happens to marginal cost after the point where it equals average variable cost?
Marginal Cost will keep increasing (have upward slope) because of the principle of diminishing marginal returns. The MC curve above the its intersection with AVC is the Supply Curve *because below minimum AVC, the firms stops production)
How is the law of diminishing returns reflected in the shape of the total product curve?
The total product curve increases rapidly reaching a peak at a specific amount and then decreases slowly as the x axis is traversed. This decreasing function demonstrates that there is a maximum amount of effort (labor or monetary) that can be applied before the overall results suffer.
Why does the marginal cost curve correspond to the supply curve?
A perfectly competitive firm's supply curve is that portion of its' marginal cost curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. As such, the firm moves along it's marginal cost curve in response to alternative prices. Because the marginal cost curve is positively sloped due to the law of diminishing marginal returns, the firm's supply curve is also positively sloped.
What are the four things shown on the production possibility curve?
The production possibility curve is a graph that shows the combinations of two goods that a firm or a nation can create. On the X axis is one good, and on the Y axis is another good. The curve itself shows the combination of goods at maximum efficiency. This curve implies that anything above the curve cannot be produced. If production is inside the curve then the firm or individual is being inefficient and not producing to maximum capacity. If the curve is a straight line this implies that there are no diminishing returns, that no matter how much you produce one good the firm or individual will always produce the same number of goods. The slope of a straight production possibility curve is the opportunity costs of those goods; as an individual or firm decreases the time to produce one good it is able to increase the time to produce the other good. This is compared to a bowed curve which implies diminishing returns. Diminishing returns implies that the returns to labor decrease as a firm or individual produces more of a certain good. This is the concept of the low hanging fruit principle, it takes less time to produce initially because the firm or individual picks the lowest hanging fruit first and then as the number of low hanging fruits dissipates it takes more effort and labor to pick the harder to get fruits. A curve can also imply the diversity of skills in a given population. If we assume that the low hanging fruit principle doesn't exist, we cannot assume that all people in a population will be equally good at a certain task. In order to produce more of a given product a firm will first hire the best individuals for the task and then inevitably will have to hire individuals that are worse at the job, reducing the returns for a given person.
