Diminishing returns:
Diminishing returns – In the short run, the law of diminish returns states that as more of a
variable input is added to fixed factors of production, change in output rises at first but then
beyond a certain point it starts to fall. (Nam’s shit definition)
Where in the short run adding variable inputs to fixed factors of production initially leads to
an increase in total output. However, beyond a certain point, total output begins to fall.
(Karan’s crisp definition)
In terms of factors of production, capital (E.G machinery used to manufacture goods)
would be a fixed output, whilst labour (E.G staff) would be a variable output.
Diminishing returns occur when in the short run, we add variable factors of
production to a stock of fixed factors of production, total production will initially rise,
but eventually fall.
The total production falls due to the constraints of the fixed factors of production.
E.G Space in a room.
Example:
, The maximum capacity of the company was 3 seats (made for 3 workers).
This example assumes all workers have the same skill set.
Marginal product (The increase or decrease between different variable outputs).
Average product (Total product divided by amount of labour).
At 0, there were no workers producing the product, so the total product (TP),
marginal product (MP) and average product (AP) were all 0.
At 1, TP: 4. MP: +4. AP: 4. At this point, the land (amount of space available) was not
being fully utilised by the business, as there was 2 seats left.
At 2, TP: 9. MP: +5. AP: 4.5. Although space was being utilised more, there was still
one seat vacant, meaning the business had the capacity and potential to produce
more, therefore underutilising. The second worker helped the second worker,
leading to the marginal increase in production.
At 3, TP: 15. MP: +6. AP: 5. At this point, the business was fully utilising its land and
the production was increasing at a fast rate from 2 workers. The business at this
point would struggle to capacitate any other workers.
At 4, TP: 17. MP: +2. AP: 4.25. The fourth worker could not be as efficient with the
lack of space (constraints of fixed factors of production). This meant the productivity
grew at a slower rate than the previous three occasions.
At 5, TP 18. MP: +1. AP: 3.6. The fifth worker struggled significantly with even more
lack of space as the maximum capacity was being exceeded drastically. This meant
that total production could only increase slightly, with the MP and AP both going
down.
At 6, TP: 15. MP: -3. AP: 2.5. The six worker not only struggled, but made everyone
else struggle with production too. The amount of workers working was now at
double the maximum capacity, meaning that the workers were likely to have been
getting in each other’s way, struggling for space and slowing down production
significantly. The sixth worker therefore caused a negative output on the business
due to the constraints of fixed factors of production.
From 1-3, the production was marginally increasing, however from 4-6, the rate of
production decreased with marginal losses due to diminishing returns. 1-5 all brought
something to the business regardless of the decline in growth after the 4 th workers was
introduced. However the 6th worker brought less to the firm.
Perhaps 1-3 increased productivity, as the 1st and 2nd workers became even more
experienced in their job when the 3rd worker arrived. Maybe they delegated each person a
different role in the aeroplanes, to increase efficiency and productivity.
Diminishing returns – In the short run, the law of diminish returns states that as more of a
variable input is added to fixed factors of production, change in output rises at first but then
beyond a certain point it starts to fall. (Nam’s shit definition)
Where in the short run adding variable inputs to fixed factors of production initially leads to
an increase in total output. However, beyond a certain point, total output begins to fall.
(Karan’s crisp definition)
In terms of factors of production, capital (E.G machinery used to manufacture goods)
would be a fixed output, whilst labour (E.G staff) would be a variable output.
Diminishing returns occur when in the short run, we add variable factors of
production to a stock of fixed factors of production, total production will initially rise,
but eventually fall.
The total production falls due to the constraints of the fixed factors of production.
E.G Space in a room.
Example:
, The maximum capacity of the company was 3 seats (made for 3 workers).
This example assumes all workers have the same skill set.
Marginal product (The increase or decrease between different variable outputs).
Average product (Total product divided by amount of labour).
At 0, there were no workers producing the product, so the total product (TP),
marginal product (MP) and average product (AP) were all 0.
At 1, TP: 4. MP: +4. AP: 4. At this point, the land (amount of space available) was not
being fully utilised by the business, as there was 2 seats left.
At 2, TP: 9. MP: +5. AP: 4.5. Although space was being utilised more, there was still
one seat vacant, meaning the business had the capacity and potential to produce
more, therefore underutilising. The second worker helped the second worker,
leading to the marginal increase in production.
At 3, TP: 15. MP: +6. AP: 5. At this point, the business was fully utilising its land and
the production was increasing at a fast rate from 2 workers. The business at this
point would struggle to capacitate any other workers.
At 4, TP: 17. MP: +2. AP: 4.25. The fourth worker could not be as efficient with the
lack of space (constraints of fixed factors of production). This meant the productivity
grew at a slower rate than the previous three occasions.
At 5, TP 18. MP: +1. AP: 3.6. The fifth worker struggled significantly with even more
lack of space as the maximum capacity was being exceeded drastically. This meant
that total production could only increase slightly, with the MP and AP both going
down.
At 6, TP: 15. MP: -3. AP: 2.5. The six worker not only struggled, but made everyone
else struggle with production too. The amount of workers working was now at
double the maximum capacity, meaning that the workers were likely to have been
getting in each other’s way, struggling for space and slowing down production
significantly. The sixth worker therefore caused a negative output on the business
due to the constraints of fixed factors of production.
From 1-3, the production was marginally increasing, however from 4-6, the rate of
production decreased with marginal losses due to diminishing returns. 1-5 all brought
something to the business regardless of the decline in growth after the 4 th workers was
introduced. However the 6th worker brought less to the firm.
Perhaps 1-3 increased productivity, as the 1st and 2nd workers became even more
experienced in their job when the 3rd worker arrived. Maybe they delegated each person a
different role in the aeroplanes, to increase efficiency and productivity.
