The Law of Diminishing Returns states that increasing one variable input, while keeping the rest of the variables constant, will eventually yield a result opposite the intended purpose of the variable change. The change will rise at first, reach peak and will eventually skew downwards sooner or later (Tutor2u Website). In economics, when marginal physical product (MPP) starts to decline, diminishing returns to labor occurs. This means that total output will increase at a decreasing rate when more workers are employed. Eventually a decline in marginal product leads to a fall in average product. What accounts for this decline in MPP?
The answer lies in the ratio of labor to other factors of production. For instance, a third worker begins to crowd the facilities available. We still have only the one sewing machine. Two people cannot sew at the same time. As a result, some time is wasted, as the operators wait for their turns at the machine. Even if they split up the various jobs, there will still be some downtime, since measuring and cutting are not as time-consuming as sewing. In this sense, we cannot make full use of a third worker. The relative scarcity of other inputs (capital and land) constrains the marginal physical product of labor (Schiller 2005, 90-91).
Eventually, if we add more workers, this will cause so much congestion that marginal product would become negative and total product would decline. At the extreme, the addition of more and more labor would exhaust all the standing room available and total product would fall to zero. Another example of this is when applying higher amounts of fertilizer in a tract of land, a farmer expects higher yields during harvest time. But, there is just one point that even though you will apply more fertilizer in your soil, the total number of yield will just be the same, if not decreasing slowly.
In the real world, the concept of diminishing returns is practically applicable in all aspects of life, not only in economics, where resources are available. For example, if you like pizza, I’ll give you two slices of pizza. That would taste great at first. However, when I require you to eat three whole boxes of pizza, there is this nth number of slice where you would give up eating pizza because you already have enough. If you do not stop eating, chances are: you are going to throw up.
Diminishing returns, is supposedly the economic equivalent of negative feedback, which argue that market demand decreases at a point where the need becomes saturated. The initial sales of a new car model stir up considerable market interest; subsequent sales generate increasingly less interest. At some point, the market for that car stabilizes. A glass of lemonade after a round of tennis on a hot day would be quite important to you, and you would probably be glad to pay a child at a lemonade stand, say, a dollar for it. However, the next glass is of less value to you and the third glass, even lesser.
The Law of Diminishing Returns favor no time, person, or place as they allow no particular advantage except the advantage that assure the “free market” principle. Diminishing returns impede unnatural growth and prevent any given system from monopolizing environmental resources. Thus, there is plenty of opportunity to go around. This means there are chance for everybody: with hard work and intelligence, any child who is born a citizen of the United States can become president; any mom and dad could do business to own huge corporation, and any town can become a Silicon Valley.
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