ECON WK1

SHIFTS IN MARKET SUPPLY:

% change % change
elasticity demand= elasticity supply=
qty demanded qty demanded
Diminishing Marginal Returns vs. Returns to Scale
Diminishing marginal returns are an effect of increasing input in the short-run,
while at least one production variable is kept constant, such as labor or
capital. Returns to scale, on the other hand, are an impact of increasing input
in all variables of production in the long run. This phenomenon is referred to
as economies of scale.

For example, suppose that there is a manufacturer that is able to double its
total input, but gets only a 60% increase in total output; this is an example of
decreasing returns to scale. Now, if the same manufacturer ends up doubling
its total output, then it has achieved constant returns to scale, where the
increase in output is proportional to the increase in production input. However,
economies of scale will occur when the percentage increase in output is
higher than the percentage increase in input (so that by doubling inputs,
output triples).

MAXIMUM PROFIT => MR=MC