Law of Diminishing returns

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The Law of Diminishing Returns deals with the relationship between different inputs and outputs in the production process br Saba Khalid Normal Saba Khalid 2 2 2007-10-08T12 :28 :00Z 2007-10-08T12 :28 :00Z 1 399 2279 Khalid 18 5 2673 10 .2625 br

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The Law of Diminishing Returns deals with the relationship between different inputs and outputs in the production process . According to Samuelson the law

of diminishing returns holds that we will get less and less extra output when we add successive doses of an input while holding other inputs fixed . This law was conceptualized by early economists such as David Ricardo Thomas Malthus Johann Heinrich von Th nen and Turgot This can be better explained with an example . With a fixed amount of land i .e . 100 acres if we assume that no labor inputs are used . This will lead to zero corn production or output . On the same 100 acre land if we employ 1 unit of labor it will lead to the production or output of 2000 bushels of corn . If we increase the labor input to 2 units on the same fixed 100 acres of land it will result in 3000 bushels of corn . As we continue adding more labor units to the fixed land a point will arise when the added labor will lead to diminishing returns or decreased production of corn . The law of diminishing returns can be seen below in the table

br UNITS OF LABOR br br EXTRA OUPUT FROM EXTRA LABOR br br 0 br 0 br br 1 br 2000 br 2000 br br 2 br 3000 br 1000 br br 3 br 3500 br 500 br br 4 br 3800 br 300 br br 5 br 3900 br 100 It is clear that the first input addition led to 2000 bushels output while the second extra labor input only resulted in 1000 bushels extra output . The trend goes on as the third labor unit only increases corn output by 500 bushels extra and the fourth labor input gives a 300 bushels increase extra . With the 5th labor input only 100 bushels output is generated Another example of the same phenomena is of studying economics . The first hour of studying will lead a person to understand many new concepts , facts , history and insights . The second hour will increase the person s economic knowledge but his or her mind will start to wander off a little . The third hour will most likely set the diminishing returns in full vengeance The law of diminishing returns is a broadly observed and greatly important economic relationship . This law is not valid for all technologies . Also , it is seen that the very first few inputs might even result in increasing production or output . However , ultimately returns will be diminishing for most technologies This law is a key factor why many Asian countries are poor . Lands are crammed with too many farmers . The result is lower productivity and output...