Law of Diminishing Marginal Returns/Law of Variable Proportions

The law of diminishing marginal returns states that holding other factors constant as additional unit of a variable factor are added to a given quantity of a fixed factors, the total product and the marginal product will initially increase at an increasing rate but beyond a certain level of output it will increase at a decreasing rate and eventually fall.

Law of diminishing marginal returns

As the units of a variable input are added to a fixed factor, its marginal/additional production initially increases at an increasing rate, then increases at a decreasing rate before finally declining.

The law of diminishing marginal returns on scale

The law of diminishing marginal returns on scale states that as more and more factors of production are added to fixed factors, additional/marginal output initially increases at an increasing rate until the optimum point beyond which it starts to decline. This explains the three stages of production namely:

  • The increasing returns.
  • Constant returns /decreasing rate and
  • Decreasing/declining returns

law of diminishing returns on scale

One factor is fixed and the rest are variable.

  • All units of the variable are similar or alike.
  • Prices of the factors of production remain constant.
  • Production is continuous
  • Technology remains constant.
  • Only during the short-term period.

Weaknesses of the law of diminishing marginal returns

  • It is a theory of static situations which cannot be realistic in current scientifically dynamic world.
  • It is assumed that land is a natural resource and man has nothing to do to increase its supply which isn’t true.
  • It is possible to improve the industrial machinery and other equipment’s so that extra people on land can move to industry bringing down the diminishing returns.

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