Google
Sunday 
September 19, 2021 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
KEYNESIAN MODEL: A macroeconomic model based on the principles of Keynesian economics that is used to identify the equilibrium level of, and analyze disruptions to, aggregate production and income. This model identifies equilibrium aggregate production and income as the intersection of the aggregate expenditures line and the 45-degree line. The Keynesian model comes in three basic variations designated by the number of macroeconomic sectors included--two-sector, three-sector, and four sector. The Keynesian model is also commonly presented in the form of injections and leakages in addition to the standard aggregate expenditures format. This model is used to analyze several important topics and issues, including multipliers, business cycles, fiscal policy, and monetary policy.

Visit the GLOSS*arama


DECREASING MARGINAL RETURNS:

In the short-run production of a firm, an increase in the variable input results in a decrease in the marginal product of the variable input. Decreasing marginal returns typically surface after the first few quantities of a variable input are added to a fixed input. This is one of two types of marginal returns. The other is increasing marginal returns. A related phenomenon is diseconomies of scale associated with long-run production.
Decreasing marginal returns occurs when the addition of a variable input (like labor) to a fixed input (like capital) causes the variable input to be less productive. In other words, two workers are less than twice as productive as one worker and four workers are less than twice as productive as two workers. Decreasing marginal returns means that the marginal product of the variable input decreases.

How about an example to illustrate decreasing marginal returns? Suppose that Flex-Star Plaque Company. produces the wildly popular Flex-Star Interactive Trophy Plaque (the wall plaque that broadcasts accomplishments to any who pass by). The Flex-Star factory, located on the outskirts of Shady Valley, is filled with the machinery, tools, and equipment--the fixed capital inputs--needed to produce Interactive Trophy Plaques.

  • The Flex-Star factory currently employs six workers (Dan, Deanna, Doug, Debra, Donnie, and Duncan) who are busily engaged in Trophy Plaque production. By dividing the tasks and effectively using the Flex-Star factory and related equipment, these six workers encounter increasing marginal returns. Dan cuts the wood. Deanna does the sanding. Doug programs the voice modulator. Debra polishes the metallic-looking plastic figurine. Donnie does the packing. And Duncan is in charge of shipping.

  • The factory currently turns out 100 plaques an hour, but demand is growing and Flex-Star needs even more production. Because the Flex-Star factory and associated capital is fixed in the short run, the only option is to hire more workers. So onto the payroll comes Barbara, Brian, Bruce, and Becky. The curious thing about this second batch of B-workers is that they are increasingly LESS productive than the original D-workers. Is this because they are less skilled? Absolutely not. The Ds have the same skills, training, and experience as the Bs.

  • No, the answer to this productivity mystery rests with the fixed capital. The original D-workers perform the critical tasks (programming, polishing, packing, etc.) needed to produce Interactive Trophy Plaques. The B-workers can boost total plaque production by assisting the Ds, fetching materials and equipment used by the Ds, and taking over when the Ds are on lunch and coffee breaks.

    But because the size of the Flex-Star factory and the amount of capital it contains are fixed, there is only so much that the Bs can do. Barbara cannot use the table saw at the same time Dan is using the table saw. There is only one table saw. While total plaque production increases with the addition of each B-worker, the incremental boost in production declines with each additional B-worker.

The end result is decreasing marginal returns. In other words, the marginal product of each worker is less than the previous worker. This is what creates the downward-sloping segment of the marginal product curve.

<= DECREASING-COST INDUSTRYDECREASING RETURNS TO SCALE =>


Recommended Citation:

DECREASING MARGINAL RETURNS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2021. [Accessed: September 19, 2021].


Check Out These Related Terms...

     | law of diminishing marginal returns | marginal returns | increasing marginal returns | production inputs | production function | production time periods | total product | average product | production stages |


Or For A Little Background...

     | short-run production analysis | marginal product | long run, microeconomics | short run, microeconomics | fixed input | variable input | product | production | production cost | variables | labor | capital | law of supply | supply | supply price | quantity supplied | principle | business | economic analysis | marginal analysis | factors of production | microeconomics | market |


And For Further Study...

     | long-run production analysis | law of diminishing marginal utility | marginal utility | division of labor | production possibilities | law of increasing opportunity cost | total product and marginal product | total product and average product | average product and marginal product | returns to scale | marginal productivity theory | marginal cost | marginal revenue product |


Search Again?

Back to the WEB*pedia


APLS

PURPLE SMARPHIN
[What's This?]

Today, you are likely to spend a great deal of time at a flea market looking to buy either a package of 4 by 6 index cards, the ones with lines or a 50 foot extension cord. Be on the lookout for the last item on a shelf.
Your Complete Scope

This isn't me! What am I?

Parker Brothers, the folks who produce the Monopoly board game, prints more Monopoly money each year than real currency printed by the U.S. government.
"When you play, play hard; when you work, don't play at all. "

-- Theodore Roosevelt, 26th US president

ADR
American Depositary Receipt, Asset Depreciation Range
A PEDestrian's Guide
Xtra Credit
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



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2021 AmosWEB*LLC
Send comments or questions to: WebMaster