Please enable JavaScript.
Coggle requires JavaScript to display documents.
THE LAW OF DIMINISHING RETURNS - Coggle Diagram
THE LAW OF DIMINISHING RETURNS
Marginal product
The extra output from having an additional unit of the variable factors
Average product
The average output per unit of the variable factor
The law states...
As additional units of a variable factor are added to a fixed factor, the extra output (marginal product) of the variable factor will eventually diminish
may not set in immediately
a factory designed for 500 workers, output per worker is likely to increase as the number of workers rises. However, above the factory's max level of workers, workers may get into each other's way and productivity may fall
It is assumed that
At least one factor of production is fixed
each unit of the variable factor is the same (equally trained workers)
The level of technology is held constant
Types of return to scale
Increasing return to scale
When an equal percentage increase in inputs to production leads to a more than proportional increase in output
Constant returns to scale
When an equal percentage increase in inputs to production leads to the same percentage increase in output
Decreasing returns to scale
When an equal percentage increase in inputs to production leads to a less than proportional increase in output