|
FACTOR DEMAND AND MARGINAL REVENUE PRODUCT: For a firm that hires the services of a factor in a perfectly competitive factor market, the factor demand curve is that portion of the marginal revenue product curve that lies below the average revenue product curve. The relation between marginal revenue product and factor demand for a perfectly competitive firm is comparable to the relation between marginal cost and short-run supply. A perfectly competitive firm maximizes profit by hiring the quantity of a factor that equates factor price and marginal revenue product. As such, the firm moves along it's marginal revenue product curve in response to alternative factor prices.
Visit the GLOSS*arama
|
|

|
|
                           MARGINAL RETURNS: The change in the quantity of total product resulting from a unit change in a variable input, holding all other inputs fixed. Marginal returns is an older and more generic term for marginal product. While marginal product has largely replaced marginal returns in most discussions of short-run production, the phrase does persist in a few terms like the law of diminishing marginal returns. Marginal returns can either increase and decrease. Increasing marginal returns mean that marginal product is greater for each subsequent unit of a variable input than it was for the previous unit. Decreasing marginal returns, as such, mean that marginal product is less for each subsequent unit of a variable input than it was for the previous unit. Two ReturnsMarginal returns can either increase or decrease.- Increasing Marginal Returns: Increasing marginal returns occurs during the course of short-run production by a firm if an increase in the variable input results in an increase in the marginal product of the variable input. Increasing marginal returns typically surface when the first few quantities of a variable input are added to a fixed input.
- Decreasing Marginal Returns: Decreasing marginal returns results with short-run production if an increase in the variable input results in a decrease in the marginal product of the variable input. Decreasing marginal returns usually emerge only after the first few quantities of a variable input are added to a fixed input and persist throughout production.
A Big, Empty FactoryHow about an example to illustrate marginal returns? Suppose that OmniMotors is producing the wildly popular OmniMotors XL GT 9000 Sports Coupe in its two-million square foot OmniMotors assembly plant located on the outskirts of Shady Valley. This OmniMotors assembly plant is filled with the machinery, tools, and equipment needed to produce XL GT 9000 Sports Coupes. In the short run, this capital, the OmniMotors assembly plant and related equipment, is fixed. To produce cars, OmniMotors needs workers. The vast size of this plant, means that OmniMotors can easily provide separate productive tasks (installing engines, painting the exterior, checking the horn) for several thousand workers.First, Increasing Marginal ReturnsWhat happens when workers are added? The first few hundred workers hired by OmniMotors are bound to make increasingly more effective use of this enormous plant. If OmniMotors employs only a dozen or so workers, each performs a wide range of unrelated tasks using a wide range of capital equipment. On a given day, one worker might spend time at the engine installation work-station to install an engine, then move off to the painting room to paint the exterior, then amble over to the hood-ornament polishing position to polish the hood ornament, then dash off to horn-testing area to honk the horn.A relatively small contingent of labor is not able to effectively use the fixed capital. This means that each additional worker employed can use the capital more effectively. Each worker can concentrate on a specific task. This gives rise to increasing marginal returns, increasing marginal product, and the upward-sloping segment of the marginal product curve. Next, Decreasing Marginal ReturnsHowever, as the workforce continues to expand, the capacity of the fixed capital is approached. Workers have to share the equipment and substitute for each other on lunch and coffee breaks. Some workers might do nothing but assist other workers. While the efforts of these extra workers does increase total production, the incremental increase declines for each one. This gives rise to decreasing marginal returns, decreasing marginal product, and the downward-sloping segment of the marginal product curve. Most important, decreasing marginal returns is a reflection of the key principle underlying the study of short-run production--the law of diminishing marginal returns.
 Recommended Citation:MARGINAL RETURNS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2022. [Accessed: May 19, 2022]. Check Out These Related Terms... | | | | | | | | | | Or For A Little Background... | | | | | | | | | | | | | | | | | | | | | | | | And For Further Study... | | | | | | | | | | |
Search Again?
Back to the WEB*pedia
|


|
|
BLUE PLACIDOLA [What's This?]
Today, you are likely to spend a great deal of time searching for rummage sales seeking to buy either a computer that can play video games and burn DVDs or a black duffle bag with velcro closures. Be on the lookout for mail order catalogs with hidden messages. Your Complete Scope
This isn't me! What am I?
|
|
In the late 1800s and early 1900s, almost 2 million children were employed as factory workers.
|
|
"Perhaps the most valuable result of all education is the ability to make yourself do the thing you have to do, when it ought to be done, whether you like it or not; it is the first lesson that ought to be learned; and however early a man's training begins, it is probably the last lesson that he learns thoroughly. " -- Thomas H. Huxley, Scientist
|
|
WFTU World Federation of Trade Unions
|
|
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.
User Feedback
|

|