Law of decreasing return

Law of Decreasing Return

1. Law of Decreasing return Lecture By Shakeel Ahmed Qureshi

2. LAW OF Decreasing RETURN Definition: A ssumptions: In a given state of technology when the units of variable factors are increased one by one along with the units of fixed factors of production keeping constant, then the marginal productivity of variable factor goes on diminishes , it is called law of decreasing returns. Units of capital and labor are used as variable factors. The prices of the factors do not change. All units of variable factors are equally efficient. There is no change in technique of production. Best combination of factors of production has crossed the level of optimum point. There is no change in the fixed factor of production.

3. LAW OF Decreasing RETURN Fixed Factor (Land) Units of variable factor (labor, capital) Marginal product (MP) Total product (TP) 10 units 1 10 10 10 units 2 8 18 10 units 3 6 24 10 units 4 4 28 10 units 5 2 30

4. LAW OF Decreasing RETURN (LAW OF increasing COST) Fixed Factor (Land) variable factor (labor, capital) Marginal product (MP) Total product (TP) Wage Marginal Cost (MC) 10 units 1 10 10 200 200/10= 20 10 units 2 8 18 200 200/8 =25 10 units 3 6 24 200 200/6 = 33.3 10 units 4 4 28 200 200/4 =50 10 units 5 2 30 200 200/2 = 100

5. LAW OF Decreasing RETURN (LAW OF increasing COST) Application The law of diminishing returns has its wide application. But is especially applicable to agricultural sector. In this sector, there is the supremacy of nature plays in production corresponds to diminishing returns. Due to the following reasons, the agricultural sector is subject to law of diminishing returns. The natural factors have more role than human factors in agricultural sector and marginal productivity decreases. The sector has very wide area and supervision cannot be very effective. Scope of specialized machinery is limited. There are other limitations of seasonal nature e.g. rain, climate changes etc. The fertility land also declines