For a typical short-run production function, so long as marginal product is increasing, a
For a typical short-run production function, so long as marginal product is increasing, average product will be increasing as well.
74) If, for a particular short-run production, we observe that marginal product is decreasing we can conclude that average product is decreasing as well.
75) Once a firm incurs diminishing marginal returns, total product will begin to decline as more of the variable input is employed.
76) At the point where a firm incurs diminishing marginal returns, total product will begin to decline.
77) The law of diminishing returns is a result of the fact that more and more units of a variable input are being added to a fixed input. Because of the limitations imposed by the fixed input, at some point the productivity of additional units of the variable input must decline.
78) All else constant, an improvement in technology would cause a firm's total, average and marginal product functions to increase (graphically, shift up).
79) The full opportunity costs of production are calculated as the sum of both explicit and implicit costs.
80) When a firm is considering whether to buy a new piece of equipment with retained earnings, the amount of interest that could be earned on that money is an explicit cost and should be treated as such.
81) Economists recognize what is sometimes referred to as "psychic income" such as the value some people attach to being their own boss. As such, failure to factor in psychic income when calculating economic profit could result in an understatement of the actual economic profit received from a particular enterprise.
82) All else constant, if the use of historic costs understates the opportunity costs associated with using a particular piece of capital, economic profit will be overstated.