Managerial Economics - Production Analysis
The Law Of Diminishing Returns - Production Analysis
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In the combination of input factors when one particular factor is increased continuously without changing other factors the output will increase in a diminishing manner.
The Law Of Diminishing
Returns
In the combination of input factors when one particular factor is increased continuously without changing other factors the output will increase in a diminishing manner. Let us assume that a person preparing for an examination continuously prepares without any break. The output or the understanding and the coverage of the syllabus will be more in the beginning rather than in the later stages. There is a limit to the extent to which one factor of production can be substituted for another. The total production increases up to an extent and it gets saturated or there won’t be any change in the output due to the addition of the input factor and further it leads to negative impact on the output. That means the marginal production declines up to an extent and it reaches zero and becomes negative. The point at which the MP becomes zero is the maximum output of the firm with the given set of input factors. This law is applicable in all human activities and business activities.
For example with two sewing machines and two tailors, a firm can produce a maximum of 14 pairs of curtains per day. The machines are used only from 9 AM to 5 PM and the machines lie idle from 5 pm onwards. Therefore the firm appoints 2 more tailors for the second shift and the production goes up to 28 units. Then adding two more labour to assist these people will increase the output to 30 units. When the firm appoints two more people, then there won’t be any change in their production because their Marginal productivity is zero. There is no addition in the total production. That means there is no use of appointing two more
In the combination of input factors when one particular factor is increased continuously without changing other factors the output will increase in a diminishing manner. Let us assume that a person preparing for an examination continuously prepares without any break. The output or the understanding and the coverage of the syllabus will be more in the beginning rather than in the later stages. There is a limit to the extent to which one factor of production can be substituted for another. The total production increases up to an extent and it gets saturated or there won’t be any change in the output due to the addition of the input factor and further it leads to negative impact on the output. That means the marginal production declines up to an extent and it reaches zero and becomes negative. The point at which the MP becomes zero is the maximum output of the firm with the given set of input factors. This law is applicable in all human activities and business activities.
For example with two sewing machines and two tailors, a firm can produce a maximum of 14 pairs of curtains per day. The machines are used only from 9 AM to 5 PM and the machines lie idle from 5 pm onwards. Therefore the firm appoints 2 more tailors for the second shift and the production goes up to 28 units. Then adding two more labour to assist these people will increase the output to 30 units. When the firm appoints two more people, then there won’t be any change in their production because their Marginal productivity is zero. There is no addition in the total production. That means there is no use of appointing two more
Tags : Managerial Economics - Production Analysis
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