Question

list as many reasons as you can why the law of dininishing returns or variable proportions is likely to take effect in the short run in the operation of a business.

Answer 1

According to the law of variable proportions, total product increases in the initial stages of production at an increasing rate, then at a decreasing rate and finally starts falling. Within this context, There comes the law of diminishing returns in which total product increases but at a diminishing rate suggesting that the marginal product is falling as the production is continued.

there are several reasons for this tendency to be observed under the production process. In the short run many factors are considered fixed and cannot be changed immediately. Due to this reason, the variable factors have to work with the fixed units of some other factors. As output level is increased, the additions made to the total output decreases because the productivity of variable factors goes on declining.

Also note that when there are more variable factors with the same quantity of fixed factors, there is an increased congestion coordination problems and mismanagement of resources. This also results in declining productivity which ultimately causes the total product to fall. this is observed only in the short run because in the long run the input combination between variable and fixed factors can be easily changed.