upward based on the principle of increasing opportunity cost. LO1 Which do you t
ID: 1209106 • Letter: U
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upward based on the principle of increasing opportunity cost. LO1 Which do you think is more likely to be a fixed factor of production for an ice cream producer during next two months, its factory building or its workers who operate the machines? Explain. L08 Economists often stress that diminishing marginal returns result from increasingly more workers using the same workspace and tools. With this in mind, explain why it would be impossible to feed all the people on earth with food grown in a single flowerpot, even if unlimited water, labour, seed, fertilizer, sunlight, and other inputs were available. LO2, LO3 True or false: The price-taking firm will always produce the output level for which price equals marginalExplanation / Answer
2. FIXED FACTOR OF PRODUCTION ARE THOSE FACTORS OF PRODUCTION, THE SUPPLY OF WHICH CANNOT BE INCREASED IN THE SHORT RUN. SO IN THE ABOVE CASE OF AN ICE CREAM PRODUCER THE FACTORY BUILDING WILL BE A FIXED FACTOR, BECAUSE A NEW BUILDING CANNOT BE MADE IN TWO MONTHS. HOWEVER THE LABOR SUPPLY CAN BE INCREASED OR DECREASED ACCORDINGLY IN THE SHORT RUN.
3. WHENEVER WE WANT TO INCREASE PRODUCTION WE CAN CHANGE THE PROPORTION OF VARIABLE INPUTS TO INCREASE IT. THE FIXED FACTOR CANNOT BE CHANGED. NOW DUE TO THE LAW OF DIMINISHING MARGINAL RETURNS THE OUTPUT WILL NOT INCREASE BEYOND A CERTAIN POINT AND THE MARGINAL OUTPUT WILL START TO FALL. THE REASON BEING THAT THERE ISA HIDDEN POTENTIAL IN THE FIXED FACTOR WHICH CAN BE USED FOR PRODUCTION BY EMPLOYING UNITS OF VARIABLE INPUT. THIS CONTRIBUTION IN THE PRODUCTION BY THE FIXED FACTOR IS HOWEVER NOT UNLIMITED AND AFTER A CERTAIN POINT, EVEN THE FIXED FACTOR IS FULLY EXHAUSTED AND IT CANNOT INCREASE THE OUTPUT. HENCE AFTER A CERTAIN POINT WE CANNOT INCREASE OUTPUT. JUST BECAUSE OF THIS WE CANNOT FEED ALL THE PEOPLE ON EARTH WITH FOOD GROWN IN SINGLE FLOWER POT.
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