AQA Economics U3 –
Post-assessment outline for improvements
Assess the view that diminishing returns can always be eliminated by a
firm increasing its level of output (25)
Intro
Define diminishing returns.
Define diminishing returns.
Analysis P1
1.
Explain what is meant by the short-run.
2.
Explain that diminishing returns are caused by
increasing the level of output by using more labour, whilst maintaining other
fixed factors of production; thus in the short-run diminishing returns are not
eliminated by increasing output.
(Use a simple example where you add
additional labour to other fixed resources such that use of capital or land
leads to inefficiencies – e.g. waiting time).
Analysis P2
Use
LRATC/SRATC envelope curve – reference the diagram in your answer.
1.
Explain what is meant by the long-run.
2.
Explain how firms can eliminate diminishing returns by
increasing the scale of production in order to increase output i.e. increasing
the amount of capital, and not just increasing the amount of labour.
(Use
the same simple example, where the inefficiency is eliminated in the SR, and
the scale of output rises)
Evaluation P3
Comment
that increasing capital is not necessarily easy, owing to finance constraints (work the example from before), planning
permissions (only if your expanded the
premises), legal barriers (e.g. prevention of monopoly power, patents etc.)
and so firms cannot (eventually) guarantee that they can eliminate diminishing
returns.
(The direct answer: agree/disagree – this is essential to the L5
response, as is the support argument and the example/s)
This answer has been developed from the mark scheme from A2 Economics
text book and the diagram lifted from: http://www.chegg.com/homework-help/questions-and-answers/1refer-graph--difference-sratc-curves-lrac-curve-sratc-curves-show-optimal-plant-size-fact-q1584425
