Question

how the opportunity cost and law of diminishing returns are related

Answer 1

The concept of increasing opportunity cost and the law of diminishing returns are related to each other.

The law of increasing opportunity cost states that as more resources are devoted for producing more and more of one good, then more is lost from the other good. This concept give rise to the concept of Marginal analysis.

For eg more resources are shifted from wheat to cotton. This will lead to increase in production by smaller and smaller amount{ Increasing at a decreasing rate}

Now this marginal analysis helps us explain the law of diminishing returns as:-

The law of diminishing return states that an increase in number of new employee causes the marginal product of another employee to be smaller than the marginal product of the previous employee at the same time.

For eg a factory employes workers to manufacture its product. Now each worker who follows provides smaller and smaller returns. If the factory continues to add workers then it actually becomes so cramped that additional workers hinders the efficiency of other employee.

Thats why both the concepts are related. Both concepts talk about same results.

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