What happens when a firm encounters diminishing returns? What causes diminishing returns? What ...

(Answer to Q. 1)  The firm encounters diminishing returns when the marginal product of variable inputs declines. This occurs because other inputs are unchanged in the short run.

(Answer to Q. 2)  Attorneys, like anyone else in the labor market earns a wage that is in line with his marginal revenue product, not his marginal productivity. Even if his productivity has been flat over the last 10 years the price of his services has probably gone up. Over time, as the economy expands, wages and incomes rise and people are likely to have a greater ability and willingness to pay more for these services.

(Answer to Q. 3)  A constant-cost industry is an industry that has no external economies or diseconomies of scale. In this case, the long-run industry supply curve will be horizontal. This occurs because the firms' long-run average cost curves are unaffected by a change in the size of the industry. Therefore minimum long-run average cost is unaffected and the price will be constant.

(Answer to Q. 4)  Internal economies and diseconomies of scale are found within firms. External economies and diseconomies of scale occur on an industry-wide basis.

(Answer to Q. 5)  No, the industry is not in equilibrium. In long-run equilibrium, price is equal to short-run marginal cost, short-run average cost, and long-run average cost. Firms in this industry are incurring losses and some will leave the industry. This will increase the price of toothpicks until firms are no longer incurring losses. In the long-run profits are driven to zero.

(Answer to Q. 6)  No, the industry is not in equilibrium. In long-run equilibrium, price is equal to short-run marginal cost, short-run average cost, and long-run average cost. Firms in this industry are earning positive profits and new firms can be expected to enter the industry. This will lower the price of fish driving profit to zero.

(Answer to Q. 7)  Essentially it would mean that the consumer would not need as much of the second good to compensate him for his reduction in the consumption of the first good.

(Answer to Q. 8)  As the price of a good changes the consumer's budget constraint changes. Thus, it is possible to see how the consumer changes his utility-maximizing choice. This will give us his new quantity demanded at each price.

Great answers, all of them were right