Business economics

The law of diminishing marginal productivity states that if one input in the production of the commodity is increased while other inputs are held fixed, a point ill eventually be reached at which additions of the input yield progressively small or diminishing increase in output. The production function is a mathematical expression which relates the quantity of factor inputs to the quantity of outputs that result in three measures total product, marginal product and average product. The law of DUMP is reflected in the shapes and slopes of the total product, marginal product and average product curve.

For e. G. Consider the production of Super Deluxe Taxmen gargantuan tacos. The table represents the hourly production of G tacos as Wallow’s Taxmen taco world employs efferent quantities of labor, the key variable input for short run taco production. Labor Total Product Marginal Product For the 1st two workers marginal product actually increases. This reflects increasing marginal returns and commonly results when the variable input is able to make increasingly effective use of a given fixed input. For the 3rd worker on, marginal product decreases.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

This reflects decreasing marginal returns and the law of diminishing marginal productivity. The graph represents the three product curves that form the foundation of short-run reduction analysis: Total product curve- the curve labeled TAP in the diagram is the TAP. The total no. Of Taxmen G tacos produced per hour for a given amount of labor. The increasingly flatter slope of the total product is an attribute to the law of diminishing marginal productivity. Marginal product curve- the PM curve is the Marginal product curve. The PM curve indicates how the total production of Taxmen G tacos changes when an extra worker is hired.

The negatively sloped portion of the PM curve is a direct embodiment of the law of diminishing Average product curve-the average product curve, labeled APPC indicates the average No. Of Taxmen G tacos produced by Wallow’s workers. The negatively sloped portion of the average product curve is indirectly caused by the law of diminishing marginal productivity. Diminishing marginal productivity could be explained in a better way with the help of few examples. The use of fertilizers in agriculture. Increased application of fertilizers augments agricultural production, but only up to a certain extent.

Once that point is reached, increased application of fertilizers no longer increases agricultural output, ether agricultural output starts declining. Once the maximum amount of production is reached, the law of DUMP starts operating and marginal increases in agricultural output begins to 4 decline. In the case of fertilizers, this occurs because with increased application of fertilizers, the fertility of the soil increases up to a certain extent. However, as the application of fertilizer to the soil increases, the fertility of soil no longer improves, rather it starts degrading.