Answer the following questions in Q&A format. NOT ESSAY FORMAT (focus on the notions of diminishing returns, productivity and costs)
1.Diminishing Returns also called the law of diminishing returns or principle of diminishing marginal productivity, is an economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output. Can you give an example of a business production process and how the law affects the costs/ marginal productivity?
2.Consider a firm at a price-taker market. If the firm is making profits in the short run, describe what will happen to the market price in the long run.
3.Please answer the following question (300- 400 words)
As we saw in previous chapters, the interaction of supply and demand determines a market equilibrium in which both buyers and sellers are price-takers, called a competitive equilibrium. Price-taking behavior ensures that all gains from trade in the market are exhausted at a competitive equilibrium. However, the model of perfect competition describes idealized conditions under which all buyers and sellers are price-takers. Can you describe those conditions and think how they might fail? For instance, you can refer to the COVID-19 pandemic, the Great Resignation that followed the pandemic, or to 2008 financial crisis.
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