Relevance of the law of diminishing returns, Managerial Economics

Relevance of The Law of Diminishing Returns

The law of diminishing returns is important in that it is seen to operate in practical situations where its conditions are fulfilled.  Thus, in a number of developing countries with peasant agricultural economies populations are increasing rapidly on relatively fixed land, and with unchanging traditional methods of production.  Consequently, productivity in terms of output per head is declining, and in some cases total productivity is falling.

Also the law of diminishing returns is important in the short run.  The aim of the firm is to maximize profits.  This happens when the firm is in a state of least-cost-factor-combination.  This is achieved when the firm maximises the productivity of its most expensive factor of production.  Productivity is measured in terms of output per unit of the factor.  Thus, if the variable factor is the most expensive factor, the firm should employ the variable factor until APP is at the maximum.  If the fixed factor is most expensive the firm should employ the variable factor up to the level when TPP is at maximum.

Posted Date: 11/27/2012 7:19:36 AM | Location : United States







Related Discussions:- Relevance of the law of diminishing returns, Assignment Help, Ask Question on Relevance of the law of diminishing returns, Get Answer, Expert's Help, Relevance of the law of diminishing returns Discussions

Write discussion on Relevance of the law of diminishing returns
Your posts are moderated
Related Questions
Provide two examples of identity economics other than those given in the article

Properties of Indifference Curves An indifference curve is usually convex to the origin. Indifference curves slope downwards from left to right. A set

DIRECT TAXES A direct tax is one where the impact and incidence of the Tax is on the same person e.g. Income Tax, death or estate duty, corporation taxes and capital gains

Normal 0 false false false EN-IN X-NONE X-NONE

Bank Rate Bank rate is the rate at which the central bank gives loans to the commercial banks against the security of government and other approved first class securities. In

Usually, elasticity of a demand curve throughout its length isn't the same (Fig. below). It varies between 0 and ∞, or in other words, 0 ≤ e p ≥ ∞ In some cases, though, the

A. Define inflation. Explain the role of inflation during inflation and deflation. B. Managerial economics is a form of economics for managers do you agrees? explain you comment

Q. Describe Rule based forecasting? Rule based forecasting: Rule-based forecasting (RBF) is a proficient method which incorporates judgment as well as statistical techniques

Open Economy None of the three economies considered so far are engaged in trade with Foreign Countries.  Such economies are often referred to as Closed Economies.  In contrast

INSTRUMENTS OF CREDIT CONTROL The central bank employs several instruments to control aggregate credit in the country. While some instruments like the open market operations mi