## Diminishing Returns - Lesson Plan: 1 x 1 hour lesson

A series of 'off the shelf' lesson plans and resources for use in the classroom. This lesson deals with Diminishing Returns. It is relevant to the following specifications:

• AQA: AS Module 1 - 10.1 and 10.4
• Edexcel: Units 2 and 4
• OCR: AS Units 2881- 5.13

### The Tennis Ball Game

With thanks to Mary Hedges, Faculty of Business, Auckland University of Technology, New Zealand mary.hedges@aut.ac.nz.

### Aim:

The aim of this lesson is to give a practical demonstration of the law of diminishing returns and then extend the idea by linking it to costs and revenues. The Activity will work with both small and large numbers of students and the variety of tasks that can be incorporated mean that many students can be involved in some form or another. The key to the success of this game is to ensure that the instructions are made very clear to all students and that the rules are adhered to strictly.

### Learning Objectives:

At the end of the lesson students should:

• Understand the law of diminishing returns
• Understand the difference between total, average and marginal concepts
• Appreciate the difference between 'production' and 'productivity'
• Appreciate the difference between the short run and the long run
• Appreciate the difference between diminishing returns and returns to scale

### Lesson Structure:

The Activity will easily take up one lesson - especially with the possibilities that will arise for discussion. The discussion can take place at the end of the Activity proper or at each stage depending on the preference of the teacher and the students response.

### Rules:

• The buckets and the balls represent a firm's capital. Initially, these factors are fixed and cannot be increased in the short run. The firm can however increase the quantity of labour it employs.
• The firm is aiming to increase its output. Each 'production run' lasts for 30 seconds (this must be strictly enforced). The timing is flexible depending on the lesson time and the number of people participating.

### The Activity:

• Workers have the job of moving the tennis balls one at a time from one bucket into another. If a ball is dropped en route to the other bucket it is classed as wastage and does not add to production.
• The balls are highly delicate items and cannot be thrown and must be placed in the receiving bucket NOT dropped. The buckets are placed about 6-10 metres apart. Initially, one student is tasked with placing as many balls into the receiving bucket as possible in 30 seconds. When time is called, the teacher or a scribe will count the 'output' - the number of balls placed in the second bucket. The number is then transferred to the chart (see example below).

Units of Labour TP AP MP TC AC MC TR Profit
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15

• The firm then hires a second unit of labour and the process is repeated. The number of units of labour continues to increase - students must all be in one line and cannot form a 'circle' around the buckets.
• As the number of workers increases, greater efficiencies should be experienced and total product begins to rise quickly; after a time the increase in total output will slow and eventually fall. Once this happens it is suggested the activity is stopped.
• Students are then asked to calculate the average and marginal product of each successive unit of labour. This can then be graphed.
• Assuming the rules have been adhered to, the outcome should reflect the theory of diminishing returns very closely.

Students can be asked to discuss what happened to the output and why.
At which combination of factors was the maximum output reached?
Costs can be assigned to the capital equipment and the units of labour - the cost of the buckets could be £100 each and the cost of each tennis ball at £10 each. Labour could cost £15 - the precise figures will depend on the number of students you have and are entirely flexible. It may be that some students were more careless than others and discussions could arise as to whether these people should be paid the same amount as everybody else.

Productivity can be demonstrated here as well - especially helpful to the number of students who confuse 'productivity' and 'production'. Given these costs, the ideas of fixed and variable costs, average and marginal costs can all be explored. It will be important to emphasise the relationship between these concepts.

Prices can then be assigned - here students can be asked to decide what price they would feel is appropriate to charge and use it to explore the ideas of cost plus pricing, contribution pricing, marginal cost pricing and so on.

Discussions could be held on how the firm could make the production process more efficient - this will assess students' creative abilities and logical processing!

The next stage could link into economies of scale. The activity can be repeated with students being encouraged to see that one way to avoid diminishing returns is to increase all factors, thus working on a new scale of production. Whether this will work depends on the number in the group, but additional volunteers could be recruited to help from the sixth form common room! The possibilities here are great - new cost curves can be generated showing the development of the long run average cost curve, the potential for decreasing, constant and increasing returns to scale, all of which could generate interesting discussion.

Related activity:
Related mind map: