Question

Think of a a factory three sewing machines. If one worker is added to the third vacant sewing machine, output will go up by quite a bit (exponentially). However, once we add workers after all sewing machines are utiilized, output will still go up. The fourth worker will cut the material, clean up, fill in for breaks. But output, while still going up, will increase in smaller and smaller increments.

With the law of diminishing returns, capital and technology must remain constant. The only thing that is changing is labor.

What is another example of diminishing returns?

Answer 1

Alfred Marshall applied the principle of diminishing marginal returns or the law of variable proportions to agriculture sector.

Stage 1. TP total production increases at a fast rate as a result of which AP average product and MP marginal product also increases. This is known as increasing returns stage.

Stage 2. TP increases slowly as a result of which AP and MP decrease and this stage is known as diminishing returns stage. At the end of this stage TP is maximum and MP is equal to zero

Stage 3. In this stage TP starts declining and AP continues to decline and MP becomes negative. Hence this stage is known as negative returns stage .

This stage is also known as irrational stage of production.

Conclusion. Classical economist s applied this principle of DMR or LVP to agriculture only but modern economist s extended it to all sectors of the economy like industry, trade and commerce etc

Assumptions.

(1) short period production function

(2) some fixed and some variable factors or atleast one factor is variable

,(3) labour is a variable factor

(4) All the labourers or variable factors are homogeneous

(5) It is possible to change the proportion between fixed and variable factors

(5) Technology or methods of production are constant