1. Explain an example that demonstrates the “real world” application of each of the following. Define the terms in your own words and use examples that clearly demonstrate your understanding of each concept. a. The Law of Diminishing Marginal Returns (____/5) - The Law of Diminishing Marginal Returns describes how as the number of input variables increases, eventually the marginal per unit begins to decrease. An example of this law is in a candy bar production line, if there are three workers, then they all have their specific jobs that they can get done efficiently. As more workers join these people, eventually the amount of product being made goes down as they get in one another’s way and the production line becomes less efficient. b. Fixed Costs, Variable Costs, and Total Cost (____/5) …show more content…
An example of fixed costs is rent for an ice cream shop in New York City. In December, even if the amount of customers goes down significantly because of the cold weather, the rent the company owes does not change just because of low business. Variable costs are costs that are dependent of how much production occurs in a given time period. An example of variable costs is energy bills. To make the ice cream, energy is needed so when ice cream is not being made as much, the energy costs will go down. Total costs are the total price paid by a company in order to keep itself afloat. Examples are the total of all energy bills, milk, cream, sugar, salaries, building rent purchased and used by a