THE LAW OF DIMINISHING RETURNS 3
TheLaw of Diminishing Returns
Thelaw of diminishing returns states that if other factors in productionare held constant while one of it is increased, the likelihood isthat the output per unit, which arises from a variable factor, willgreatly diminish. For a firm to know that it is operating at a pointof diminishing returns, a factor of production like the number ofworkers can be increased while others like machines can be heldconstant throughout the process in a factory producing cotton. Thismeans that the workers will exceed the number of machines and theoutput is likely to diminish because the workers added willcontribute less compared to the ones that were there previously. Thereturns contributed by each additional employee will be smaller everytime such a decision is made. It will reach a point, therefore, wherethe former workers become ineffective because of the additionalemployees, and finally the production of the factory will decrease(Barkley and Barkley, 2016). Therefore, if you monitor the output perunit and realize that it is decreasing due to the increased number ofworkers then there would be a high likelihood that the firm would beoperating at a point of diminishing returns.
Thereare costs that are associated with such scenario the marginal costs,for instance, will be affected by the law of diminishing returns. Theimpact is felt in the short run as such a cotton production industrycontinues to admit more workers while maintaining the same number ofmachines. The firm will have to cater for the costs of other machinesto match the number of more workers who are recruited by the firm forthe production output to be maintained at the same level. Indeed,marginal costs depend on how the law of diminishing returns changeswith time.
References
Barkley,A & Barkley, P. W. (2016). Principlesof Agricultural Economics.Routledge Publishers.