2. • The law of diminishing return states that ‘when
more and more units of a variable input are
used with a given quantity of fixed inputs, the
total out put may initially increase at increasing
rate and then at a constant rate, but will
eventually increase at diminishing rates’.
• The marginal increase in total output decreases
eventually, when additional units of a variable
factor are used, given quantity of fixed factors

3.  1.labour is only variable input, capital is
remaining constant
 2.labour is homogenous
 3. the state of technology is given and
 4. input prices are given

4. • Illustration: Assume i. a coal mining firm has a
set of mining machinery as its capital (K) fixed
in the short run and ii. That it can employ only
more workers to increase its coal production
• Thus short-run production function Qc=f(L),K
• Assume the labour-output relationship is given
by a hypothetical production function
• Qc=-L3+15L2+10L by substituting values for L
labour we can get the output Qc

5. • Marginal productivity of labour: can be obtained by
differentiating production function thus
• MPL= δQ/ δL= -3L2+30L+10 by substituting numerical
value to L we can get MPL
• (this method can be used only where labour is
perfectly divisible and δL -> 0)
• Alternatively where labour can increased by at
least one unit : MPL=TPL-TPL-1
• Average productivity of labour APL can be obtained
by dividing production function by L
• Computed table by increasing L is given in next slide

6. No of
workers
Total product
TPL
Marginal
product MPL
Average
product APL
Stages of
production
1 2 3 4 5
1 24 24 24 Increasing
2 72 48 36 Returns -I
3 138 66 46
4 216 78 54
5 300 84 60
6 384 84 64
7 462 78 66 diminishing
8 528 66 66 Returns -II
9 576 48 64
10 600 24 60
11 594 -6 54 Negative
12 552 -42 46 Returns -III

7. THANK
YOU