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The classical economists were of the opinion that the taw of diminishing returns applies only to agriculture and to some extractive industries, such as mining, fisheries urban land, etc. The law was first stated by a Scottish farmer as such. It is the practical experience of every farmer that if he wishes to raise a large quantity of food or other raw material requirements of the world from a particular piece of land, he cannot do so. He knows it fully that the producing capacity of the soil is limited and is subject to exhaustation. As he applies more and more units of labor to a given piece of land, the total produce
no doubt increases but it increases at a diminishing rate. For example, if the number of labor is doubled, the total yield of his land will not be double. It will be less than double. If it becomes possible to increase the. yield in the very same ratio in which the units of labor are increased, then the raw material requirements of the whole world can be met by intensive cultivation in a single flower-pot. As this is not possible, so a rational farmer increases the application of the units of labor on a piece of land up to a point which is most profitable to him. This is in brief, is the law of diminishing returns. Marshall has stated this law as such: "As Increase in capital and labor applied to the cultivation of land causes in general a less than proportionate increase in the amount of the produce raised, unless it happens to coincide with the improvement in the act of agriculture".
Explanation:This law can be made more clear if we explain it with the help, of a schedule and a curve.
Fixed Input
Inputs of Variable Resources
Total Produce TP (in tons)
Marginal product MP (in tons)
12 Acres
12 Acres
12 Acers
12 Acres
12 Acers
12 Acres
1 Labor
2 Labor
3 Labor
4 Labor
5 Labor
6 Labor
50
120
180
200
200
195
50
70
60
20
0
-5
In the schedule given above, a firm first cultivates 12 acres of land (Fixed input) by applying one unit of labor and produces 50 tons of wheat.. When it applies 2 units of labor, the total produce increases to 120 tons of wheat, here, the total output increased to more than double by doubling the units of labor. It is because the piece of land is under-cultivated. Had he applied two units of labor in the very beginning, the marginal return would have diminished by the application of second unit of labor. In our schedules the rate of return is at its maximum when two units of labor are applied. When a third unit of labor is employed, the marginal return comes down to 60 tons of wheat With the application of 4th unit. the marginal return goes down to 20 tons of wheat and when 5th unit is applied it makes no addition to the total output. The sixth unit decreased it. This tendency of marginal returns to diminish as successive units of a variable resource (labor) are added to a fixed resource (land), is called the law of diminishing returns. The above schedule can be represented graphically as follows:
Point of diminishing marginal return In Fig. (11.2) along OX are measured doses of labor applied to a piece of land and along OY, the marginal return. In the beginning the land was not adequately cultivated, so the additional product of the second unit increased more than of first. When 2 units of labor were applied, the total yield was the highest and so was the marginal return. When the number of workers is increased from 2 to 3 and more. the MP begins to decrease. As fifth unit of labor was applied, the marginal return fell down to zero and then it decreased to 5 tons.
Marginal return
Assumptions of Law of Diminishing Returns:The table and the diagram is based on the following assumptions:
(i) The time is too short for a firm to change the quantity of fixed factors.
(ii) It is assumed that labor is the only variable factor. As output increases, there occurs no change in the factor prices.
(iii) All the units of the variable factor are equally efficient.
(iv) There are no changes in the techniques of production.
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Why law of diminishing returns is considered a short-run phenomenon?
why law of diminishing returns is considered a short-run phenomenon?
Who is responsible for the law of diminishing returns?
Thomas Malthus
Why isoquants convex to the origin?
law of diminishing returns
What offsets the law diminishing returns?
technical innovation
Who is responsible for law of diminishing returns?
Thomas Malthus
Why law of diminishing returns is considered a short-run phenomenon?
why law of diminishing returns is considered a short-run phenomenon?
Who is responsible for the law of diminishing returns?
Thomas Malthus
Who is responsible for the law diminishing returns?
Thomas Malthus
Why isoquants convex to the origin?
law of diminishing returns
What offsets the law diminishing returns?
technical innovation
Who is responsible for law of diminishing returns?
Thomas Malthus
The importance of the law of diminishing returns?
The law of diminishing returns helps managers maximize their profits. At the point where their costs begin to rise, they can switch to another product to make more money.
What is the law of diminishing returns?
the law of diminishing returns states that as a set of variable factors is added to a set of fixed factor, the marginal product and average product will first increase then eventually decrease
Who is responisble for the law of diminishing returns?
An economist by the name of Turgot was responsible for the law of diminishing returns. Thomas Malthus and David Ricardo also had an influence of this principle which evolved from agriculture and food production.
What the cause of the diminishing returns law?
will the significance of the law of diminishing returns is that this determines the range of the products that is been produced if it is marketable.
Assumptions of the Law of Diminishing Return?
one more piece of production will reduce output
What offset the law of diminishing returns?
technical innovation
