Coursework Assignment Essay Example | Topics and Well Written Essays - 1250 words

Coursework Assignment - Essay Example This is because the return scale decreases as the production factors are increased. Diminishing returns take place when the labour marginal productivity begins to fall. In the present case, an extra unit of labour is added to a fixed capital when production of buses takes place. It reaches a place where marginal production of extra labour is maximized after which the output for each additional unit of labour falls. Diminishing returns is a law that takes place because production factors like capital labour inputs are imperfect substitutes (Jehle & Philip, 2000). This implies that when producing a product like for this paper, buses and cars, the resources put in use are inefficient when turned for a production of a different service or another good. For instance, workers deployed in the vehicle industry to make buses and cars may be inefficient, if they are re-employed in a cement producing industry. Similarly, quite a number of item involving capital equipment specify to a single typ e of production. If switched to different uses, there would be inefficiency in production of output. Production factors like capital and labour are said to be immobile occupationally as they can be turned to other functions, although with a resultant productivity loss. An inverted relationship does exist between production factors and the cost of production of a unit in a firm. When there is low productivity, cost per unit of supplying service or a good turns out to be higher (Frank, 2006). Therefore, a firm can get higher returns and be efficient in its labour force leading to higher profits and lower costs. Here, K represents capital employed in the form of machine while L stands for labour employed which in this paper is the number of men who repair or make new vehicles. Using N buses = 0.4 K1.1 L0.41 L=0 L=1 L=2 L=3 L=4 L=5 L=6 K=16 0 8.4 11.0 13.5 15.2 16.0 17.7 K=14 0 7.3 9.5 11.7 13.1 13.9 15.3 K=12 0 6.2 8.0 9.8 11.1 11.7 12.9 K=10 0 5.0 6.5 8.1 9.1 9.6 10.6 K= 8 0 4.0 5.1 6 .3 7.1 7.5 8.3 K= 6 0 2.9 3.7 4.6 5.2 5.5 6.0 K= 4 0 1.8 2.4 2.9 3.3 3.5 3.9 K= 2 0 0.9 1.1 1.4 1.5 1.6 1.8 K= 0 0 0.0 0.0 0.0 0.0 0.0 0.0 Task B Edge worth box This box is frequently used in a theory of general equilibrium. It helps represent competitive equilibrium in a range of outcomes, which satisfies economic efficiency. It can also aid in detecting difficulty in reaching efficiency in the presence of a bilateral monopoly. From the table above, it is noted that as the number of men is increased holding machine constant number of buses produced increase but in a decreasing rate. This implies that the output or returns to scale diminishes. Therefore, it means that the ratio of employed labour to the number of machines is not that proportional. This creates inefficient use of resources, and in this case, it is the labour employed. If labour is not used efficiently, the firm incur a lot of costs in the form of salaries and wages that are not effectively used (Mas-Colell et al., 19 95). This may lead a firm to diminishing returns to scale. If there is no labour or machine employed, there is no output at all as output is only evident when there is a combination of the two. On the other hand, holding labour constant and adding more machines leads to a steady output as the labour that is available can only use up to a certain no of machines. Task C In the edge box, there are two curves for cars and buses. Whenever