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Give an example of a product which experiences the law of diminishing marginal productivity. At what point would a firm stop production on such a product?

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1) Give an example of a product which experiences the law of diminishing marginal productivity. At what point would a firm stop production on such a product?

A firm should stop production when price goes below average variable cost or in other words, "When price does not cover average variable costs at any rate of output, production should cease. The shutdown point is that rate of output where price equals minimum AVC."

Reference: http://www.belkcollege.uncc.edu/costiven/econ%202102%20chap%207%20modified%20for%20dl.ppt

Give an example of economies of scale in industry. What is the implication of economies of scale for new entrants into an industry?

An example of economies of scale will be in the telecom industry. For example, when subscribers to a cellphone or internet service increases, per unit cost of service decreases and economies of scale is achieved. Economies of scale is also common in manufacturing units where in cost of production decreases with increased production, such as manufacturing of cars, garments and so ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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