Law of Diminishing Productivity
The Law of Diminishing Marginal Production
Econ 31514 Shenika De Silva
SS/2009/087
Content
1. Introduction 2. Production 3. Stages of Production 4. Production Function 5. Production Time Periods 6. Marginal productivity Theory i. Diminishing Marginal Productivity ii. Example 1 iii. Example 2 7. References
Introduction
Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.
In the classic example of the law, a farmer who owns a given acreage of land will find that a certain number of labourers will yield the maximum output per worker. If he should hire more workers, the combination of land and labour would be less efficient because the proportional increase in the overall output would be less than the expansion of the labour force. The output per worker would therefore fall. This rule holds in any process of production unless the technique of production also changes.
Early economists, neglecting the possibility of scientific and technical progress that would improve the means of production, used the law of diminishing returns to predict that as population expanded in the world, output per head would fall, to the point where the level of misery would keep the population from increasing further. In stagnant economies, where techniques of production have not changed for long periods, this effect is clearly seen. In progressive economies, on the other hand, technical advances have succeeded in more than offsetting this factor and in raising the standard of living in spite of rising populations.
Production
In economics, production is the act of
Econ 31514 Shenika De Silva
SS/2009/087
Content
1. Introduction 2. Production 3. Stages of Production 4. Production Function 5. Production Time Periods 6. Marginal productivity Theory i. Diminishing Marginal Productivity ii. Example 1 iii. Example 2 7. References
Introduction
Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.
In the classic example of the law, a farmer who owns a given acreage of land will find that a certain number of labourers will yield the maximum output per worker. If he should hire more workers, the combination of land and labour would be less efficient because the proportional increase in the overall output would be less than the expansion of the labour force. The output per worker would therefore fall. This rule holds in any process of production unless the technique of production also changes.
Early economists, neglecting the possibility of scientific and technical progress that would improve the means of production, used the law of diminishing returns to predict that as population expanded in the world, output per head would fall, to the point where the level of misery would keep the population from increasing further. In stagnant economies, where techniques of production have not changed for long periods, this effect is clearly seen. In progressive economies, on the other hand, technical advances have succeeded in more than offsetting this factor and in raising the standard of living in spite of rising populations.
Production
In economics, production is the act of
References: * P. Kotler, G. Armstrong, L. Brown, and S. Adam (2006) Marketing, 7th Ed. Pearson Education Australia/Prentice Hall. * Paul M. Johnson - A Glossary of Political Economy Terms -- Productivity; * Roger A. McCain - Drexel University Department of Economics and International Business; Marginal Productivity and Increasing Returns to Scale * Dhires Battacharyya - Fundamentals of Business Economics * P. A. Samuelson - Economics (10th edition) * Anil Bahat, Jyoti Kachroo – Economics of Production and Marketing of Citrus * Price, Profit and Production: Principles of Economics - Louis August Rufener * Production Economics: Theory with Applications - John P. Doll, Frank Orazem