1. Create your own example of Law of Diminishing Marginal Utility and explain comprehensively.

Let us first understand utility, which is Here we can picture that each additional
defined as the satisfaction that a customer consumption of chocolate from 10 it decreases in
receives from a product. Marginal is the 3 and so on due to the decreasing of satisfaction
additional, and Marginal Utility is the increase in of consumers that tends to decrease
utility or satisfaction after purchasing one or more continuously
Consumption Total Utility Marginal Utility
products. For example, when we crave 1st 10 10
something, let's say a chocolate bar, the first 2nd 17 7
consumption of the chocolate bar we bought 3rd 21 4
gave us the most satisfaction, but when we buy it 4 th
22 1
again, although
somehow it can somehow
still satisfy us not as much as the 5 th
20 -2
first one our enjoyment was decreasing overtime
after consuming another chocolate and makes us
consume lesser and lesser.

2. Why should a firm continue to operate under short-run period when TR is greater than VC but
less than TC?
A firm should continue to exist as long as Total Revenue exceeds Variable Costs, but when variable
costs exceed total revenue, it is time to shut down. Because stopping production will cost more than
continuing production without profit. As fixed costs have already been paid, the expense on fixed costs
would be wasted if production were to be stopped, so it's more advisable that the business continue to
operate under short-run period as it can still generate a profit.

3. Differentiate the external economies of scale and internal economies of scale.

External economies of scale refer to circumstances that are external to the business but contribute
to its efficiency in terms of increased output and lower unit cost of production. For example, when there is
smooth transportation, a company can reduce transportation costs and avoid supply delays. Another
example is when the government implements a policy regarding the requirements of hiring an employee, it
can be a big help to the business to ensure the quality of the performance of an employee that can greatly
impact their production, aside from that as we know that the suppliers pertain as external, external
economies of scale can produce various of suppliers and it’s beneficial to the businesses. On the other
hand, the internal economies of scale are more on the inside of a business, it focuses on the workforce of
the whole business and its production efficiency, from the division of labor, modern techniques of
production, and human resources development that can raise the productivity and cost efficient.

4. Why should the rich countries use capital-intensive technology?

Given that they can afford to acquire fixed capital assets such as land, machines, capital, and plant
for manufacturing, they can utilize these to expand their businesses even further by investing more in
machineries and technologies, with this their production will be faster and more efficient and with the fact
that the labor is expensive in rich countries and so it’s wise to make use of their capital in modern
technology.

5. Why should the poor countries use labor-intensive technology?

Because poor countries typically lack in source of capital, it is advantageous to maximize on what
they do have, which is labor. They have the advantage of having a large employment potential because
many people are looking for work to support their families. Consider this a chance to increase the scale of
its output with the same amount of capital but more labor.