Define the Law of Diminishing Returns

question 170

Essay

Define the Law of Diminishing returns:

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Definitions:

MR = MC

An economic principle stating that the maximum profit occurs where marginal revenue equals marginal cost, guiding firms on the optimal level of output.

Output

The total amount of goods or services produced by a firm, industry, or economy within a given period.

Short-Run Supply

The supply of goods that varies with changes in price in the short term, where at least one factor of production is fixed.

Average Variable Cost

The total variable costs divided by the quantity of output produced, indicating the average cost of production per unit when fixed costs are excluded.