IB Economics HL 2.2.2 Diminishing Returns Question Bank

Level

Marks

0

The work does not meet a standard described by the descriptors below.

1

The written response is limited.

1-2

For a limited explanation that marginal product initially tends to increase but then because of a fixed input (factor), diminishing returns cause MP to fall.

OR

MP falls because of a fixed input, which increases the additional costs of one more unit, and so MC increases.

Marking guidance:

Allow [1] mark only if "productivity" used instead of MP or if fixed input not mentioned.

An algebraic response (see below) without any reference to The Law of Diminishing Marginal Returns may be awarded a maximum of [2] marks.

2

The written response is accurate.

3-4

For explaining that marginal product initially tends to increase, due to specialization, but then because of a fixed input (factor) that has to be shared, diminishing returns cause MP to fall.

AND EITHER

as MP falls, the additional costs of one more unit of output will begin to increase and so MC increases.

OR
$$\mathrm{MC}=\frac{\Delta \mathrm{VC}}{\Delta \mathrm{Q}}=\frac{\Delta(\mathrm{wL})}{\Delta \mathrm{Q}}=\mathrm{w}\left(\frac{\Delta \mathrm{~L}}{\Delta \mathrm{Q}}\right)=\mathrm{w}\left(\frac{1}{\mathrm{MP}}\right)$$

so, if MP increases, then MC will decrease and, when MP decreases (as a result of the LoDMRs), then MC will increase.