Diminishing Marginal Returns

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We make use of 3 measures of production:

  • Total Product - the total output that is generated from the factors of production employed by a business. It is much more difficult to measure intangible assets.
  • Average Product - Total Output / Number of units of the variable factor of production employed
  • Marginal Product- change in total product when an additional unit of the variable factor of production is employed

Short Run Production Function

  • A period of time where at least one factor of production is assumed to be in fixed supply.
  • e.g. Land available, Plant and machinery
  • It depends on the time scale that


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