Question

Describe the Law of Diminishing Returns.

Hint:

Law of Diminishing Returns = “Too many workers on fixed land → less output per worker.”

Answer 1

Step 1: Introduction.
The Law of Diminishing Returns is an important principle in economics. It states that if more and more units of a variable factor (e.g., labour) are applied to a fixed factor (e.g., land), the additional output (marginal product) obtained from each successive unit of the variable factor will eventually decrease.
Step 2: Statement of the Law.
According to Marshall: "An increase in the amount of one factor of production, while other factors remain fixed, after a certain point, results in a less than proportionate increase in output."
Step 3: Assumptions.
1. At least one factor of production is fixed (e.g., land).
2. The technique of production remains constant.
3. The units of variable factor are homogeneous.
4. It applies to the short run only.
Step 4: Explanation with Example.
Suppose labour is applied to a fixed piece of land: - The first few workers increase output significantly.
- Later workers add smaller increases in output.
- Finally, additional workers may not increase output at all or may even reduce it due to overcrowding.
Step 5: Importance.
1. Explains why excessive use of a factor is unproductive.
2. Basis for the law of variable proportions in production.
3. Helps in determining the optimum combination of inputs.
4. Useful in agriculture and industries with fixed resources.
Step 6: Conclusion.
Thus, the law of diminishing returns shows that output cannot increase indefinitely by adding more units of a variable factor to a fixed factor, and efficiency decreases beyond a certain point.