LAWS OF DIMINISHING RETURNS
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The Law of Diminishing Returns states that as successive units of
a variable factor is applied to a given fixed factor, output will increase at
first but it will get to a point at which the addition of one more unit of the
variable factor will result in less additional units of output. In order words,
The variable Factor here can be Labour or capital and the fixed factor can be
land.
The Law of Diminishing Returns,
sometimes called the law of variable
proportions, is applicable to both the agricultural and industrial sectors
that use both the fixed and variable factors of production.
This Law can be illustrated in the
table below
Fixed Factor (Land)
|
Variable Factor (Labour Unit)
|
Total Output (kg)
|
Average Output (kg)
|
Marginal Output (kg)
|
1
|
1
|
10
|
10
|
|
1
|
2
|
30
|
15
|
20
|
1
|
3
|
60
|
20
|
30
|
1
|
4
|
120
|
30
|
60
|
1
|
5
|
100
|
20
|
20
|
1
|
6
|
90
|
15
|
10
|
EXPLANATION: As Mr. A employs one labour to work in his one hectare farm, 10tons of yam were produced. As more and more labour are employed in every successive round of production, the total output continues to increase from 10 to 30, to 60, to 120 and so on. But as the fifth (5th) labour was used or employed, there was a drop in production from 120 to 100. This is the stage at which the law of diminishing returns sets in as every additional unit of labour brings about a decrease in the total output.
IMPORTANCE OF LAW OF DIMINISHING RETURNS:
1. Proper Combination of Factors
of Production- The Law of Diminishing Returns helps the entrepreneur to
combine properly the factors of production to prevent wastage.
2. Changes in Scale of
Production- The Law of Diminishing Returns helps entrepreneurs to change
the scale of production through the variation of the quantities of all input.
3. It Ensures Efficiency- As
more and more variable factors are added to a fixed factor, it eventually comes
to a profitable level and productivity and efficiency are maintained.
NOTE: PARTS OF THIS POST WERE CULLED FROM TONAD ESSENTIAL ECONOMICS FOR
SENIOR SECONDARY SCHOOLS BY C.E ANDE. WE AT EDU-MADE-EASY RESPECT THIS CRAFT TOO
MUCH TO DENY ITS ORIGIN. THANK YOU
This brings us to the end of Today's Session. Hope this was
very helpful to you, leave a comment of what you think of this Tutorial and of
your Questions below. Have a Blessed Day and Remember You are Amazing. God
Bless You.
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