Question

What is the law of diminishing returns in production and how it affects the level of output? You could use the marginal product of labour and the marginal product of capital. Topics are related to first half of the course and include theories and practices. Write an essay at least 2,000 words.

Answer 1

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Abstract

Meaning of the Concept of law of diminishing returns in production

The law of diminishing returns is significant because it is part of the basis for economists' expectations that a firm's short-run marginal cost curves will slope upward as the number of units of output increases

The law of diminishing marginal returns states that adding an additional factor of production results in smaller increases in output. After some optimal level of capacity utilization, the addition of any larger amounts of a factor of production will inevitably yield decreased per-unit incremental return.

For Example, Consider a corn farmer with one acre of land. In addition to land, other factors include quantity of seeds, fertilizer, water, and labor.

As he increases the amount of fertilizer, the output of corn will increase

Effect of law of diminishing returns on level of output

As we have seen in definition which is self explanatory, which relates the law of diminishing marginal returns states that adding an additional factor of production results in smaller increases in output. after some optimal level of capacity utilization, the addition of any larger amounts of a factor of production will inevitably yield decreased per-unit incremental returns.

Importance of the law of diminishing returns in respect to marginal product of labor and marginal product of capital

• The law of diminishing marginal returns states that adding an additional factor of production results in smaller increases in output. For Example, If the number of Labor can be increased till the certain stage where the capacity of plant is well defined. But if the plant have limited capacity then there is no benefit to increase the number of Labor to produce more quantity and increase the output
• After some optimal level of capacity utilization, the addition of any larger amounts of a factor of production will inevitably yield decreased per-unit incremental returns.
• For example, if a factory employs workers to manufacture its products, at some point, the company will operate at an optimal level, with all other production factors constant, adding additional workers beyond this optimal level will result in less efficient operations.
• For a given state of technology, is bound to increase with an increase in the quantity of a variable input. However, as the quantity of the inputs keeps on increasing, the marginal product rises to a maximum, then starts to decline and eventually becomes negative.
• In term of product whereas the producer would have an opportunity to increase production by employing more variable inputs and increase the output of production .
• Eventually, even if the fixed factor is free of cost in this stage, a rational producer would continue adding more units of the variable factor.

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