Sunday, 27 September 2009

The law of diminishing return

After I read Siyi's blog, I decide that I will write about the law of diminishing return as well.

In economics, diminishing returns refers to how the marginal production of a factor of production, in contrast to the increase that would otherwise be normally expected, actually starts to progressively decrease the more of the factor are added.

For example the land, it leading to restrict the production, unless increase the land and improve the production then the performance will be getting better. How is the law of diminishing return relative marginal cost marginal cost is the change in total cost resulting by one extra output per unit.Thus once the diminishing return start, the marginal cost curve slop upwards,
because when the diminishing return achieve the obtain points it start to increase, for example, there are one people use computer to produce a product, therefore when he stop use computer, the product will be stop to produce. Then the industry will recruit one more labour, thus when the first staff go to rest, then second one will continue to produce, therefore the output will be increase. However if the industry still recruit more labour to work in this industry,For instance if there are 3 people use the computer together, it increase the output, but the marginal cost will increase as well, because the company will spend more on the labour salaries, and also the third one may get less salaries than the first and second one, so he will think it not fair and demotivating too.

1 comment:

chris sivewright said...

Can a business get increasing returns?
Are diminishing returns short or long term?
Does MC start where AVC starts?
How are diminishing returns used in Economics?
What diagram can be used for diminishing returns?

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