![]() This reduction in the product is only because of the destructive powers of the soil. From the study of the table given above by the introduction of additional capital and labour the total unit increases from the marginal unit decreases. The second unit increases to 50 Quintals the extra capital and labour produces (50 – 30) = 20 quintals.įrom the third 15 from 4th and 5th unit 10 quintals and 5 quintals are marginal product. When he applies first unit of labour and capital he produces 30 Quintals. He applies some capital and labour to his farm. In Economics this is known as ‘Law of Diminishing Returns’.įrom the table given above it is clear that a farmer cultivates a small piece of land. The total return increases but the marginal return decreases. Suppose, if agriculture is done on a piece of land and the quantity of labour and capital is increased then in the proportion in which it has been increased in that proportion the return will not increase. If all means of production are fixed or all means of production are variable then this law will not work properly. (iii) The law will be applicable only when one means of production is fixed and other means are variable. According to Silverman – “After a certain point, an increase in the capital and labour applied in proportion, causes a less than proportionate increase in the amount of the product.” ![]() According to Benham-”As the proportion of one factor in a combination of factors is increased, after a point, the marginal and average product of that factors is increased, after a point, the marginal and average product of that factors is increased, after a point, the marginal and average product of that factor will diminish.”Ģ. Definition of the Law of Diminishing Returns :ġ. The reason is that the Law of Diminishing Return applies in the field of agriculture. If this was not the condition then no country would have faced the food problem. From past experience it is known that the productive power of land is limited. He put more and more units of labour and capital for more production. Every farmer wants to yield more and more from his land. ![]() Summary Definitionĭefine The Law of Diminishing Returns: The law of diminishing returns states that each additional input will less and less output as more are added.He has written that “A doubling of the capital invested in the agriculture would not double the yield.”Īs the area of land is limited. When the marginal product is equal to or lower than the average product, the average product decreases as the variable factor increases (L=3 to L=7). When the marginal product is equal to or higher than the average product, the average product increases as the variable factor increases (L=1, L=2).Ħ. When the marginal product is negative, the total product decreases (TP=47).ĥ. When the marginal product is equal to 0, the total product takes the maximum value (TP=48).Ĥ. That is, the law of diminishing returns comes into effect after adding an additional unit of labor (L=3).ģ. At the point where the marginal product reaches its maximum value (L=2, MP=24), the total product starts to increase at a decreasing rate. When the marginal product increases, the total product grows by the same amount. The following table shows the total product, the average product and the marginal product of a firm operating in the short-term. This concept can also be applied to consumption. However, as the variable factor keeps increasing and new units are added, the average and marginal returns start diminishing after a certain point because the increase in the quantity of the variable factor diminishes the marginal return of the fixed factors. In the beginning, when the variable factor is at relatively low levels, the average and marginal return is equally low because the fixed factors may not be fully utilized, thereby eliminating an opportunity for specialization. What is the definition of the law of diminishing returns? The law of diminishing returns is explained by the fact that as the variable factor increases a lower proportion of the fixed factor corresponds to each unit. What Does the Law of Diminishing Returns Mean? There will be a diminishing effect where each input contributes less in proportion to the overall production output. In other words, after a certain point of production each input will not increase outputs at the same rate. Definition: The law of diminishing returns is an economic concept that shows that there is a point where an increased level of inputs does not equal to an equal increase level of outputs.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |