Final answer:
The law of diminishing returns indicates that as a firm employs more labor, the additional output produced by each new unit of labor will eventually start to decrease. This demonstrates diminishing marginal productivity, which can be analyzed through marginal analysis, contrasting with normative statements and demonstrating trade-offs on the production possibilities frontier.
Step-by-step explanation:
The law of diminishing returns states that the marginal productivity of additional resources employed begins to decline after a certain point. This is a general rule that as a firm employs more labor and increases production, there comes a point at which the amount of additional output (diminishing marginal productivity) produced with each additional unit of labor starts to decrease. It is essential to note that the initial increments of labor can lead to increased production, but as more and more labor is added, the productive efficiency of each worker decreases because they might have less access to capital, less space to work efficiently, or tasks may not be as easily divided.
Marginal analysis is the examination of decisions on the margin, meaning slightly more or slightly less from the current situation. It is important to distinguish it from a normative statement, which describes how the world should be rather than how it actually is. The choices made on the production possibilities frontier (PPF) indicate productive efficiency, showing the trade-offs and opportunity costs associated with allocating resources towards different goods and services. Countries specialize in productions in which they have a comparative advantage, and this specialization increases total production if trade occurs.