Law of Diminishing Returns, Marginal Cost and… | tutor2u Economics
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Law of Diminishing Returns, Marginal Cost and Average Variable Cost

  • Levels: AS, A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

In this short revision video we go through the law of diminishing returns and explain the link between declining marginal productivity and rising short run marginal and average variable cost.

Law of Diminishing Returns, Marginal Cost and Average Variable Cost

Diminishing returns to labour in the short run

As more of a variable factor (e.g. labour) is added to a fixed factor (e.g. capital), a firm will reach a point where it has a disproportionate quantity of labour to capital and so the marginal product of labour will fall, thus raising marginal cost and average variable cost.

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