Diminishing returns to a single factor of production

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It is possible to have diminishing returns to a single factor of production but constant returns to scale at the same time.

A firm’s profit is equal to the difference between total revenue and total cost; therefore, a profit-maximizing firm will produce at the quantity where there is the greatest difference between marginal revenue and marginal cost.

An increase in the price of an input leads to higher costs and therefore less profit at the original quantity produced; therefore, some firms will increase the quantity they produce in order to increase revenues.

An isoquant slopes downward when the inputs to production exhibit diminishing marginal returns.

The short-run marginal cost curve slopes upward when the inputs to production exhibit diminishing marginal returns.

Competitive firms always earn zero profits because their marginal cost is equal to their marginal revenue at the optimal level of production.

A price-taking, profit-maximizing firm should never produce at a quantity where the marginal cost of producing output is decreasing.

Reference no: EM13299582

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