Law of diminishing returns

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The law of diminishing returns states that when adding successive units of a variable input to a fixed input, the additional output produced by each additional variable input unit decreases beyond a certain point.

LAW OF DIMINISHING
RETURNS

The law states that when
successive units of a variable
input work with a fixed input
beyond a certain point the
additional product produced by
each additional unit of a
variable, input decreases.

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 Isoquant is also called as equal product curve or production indifference curve or constant product curve. Isoquant indicates various combinations of two factors of production which give the same level of output per unit of time.  Just as an indifference curve represents various combinations of two goods which give a consumer equal amount of satisfaction, an iso-product curve shows all possible combinations of two inputs physically capable of producing a given level of output. Since an iso-product curve represents those combinations which will result in the production of an equal quantity of output, the producer would be indifferent between them.  This law was given by Alfred Marshall in his book principle of economics.  It show particular pattern of change in output when some factor remain fixed.  Production depend upon factors of production , if factors of production are good, production may increase and vice-versa.  Production function show functional relationship between production and factors of production.  It refers to manner of change in output cost by the increase in all the input simultaneously and in the same proportion.  Returns refers to “change in physical output”  Scale refers to “quantity of input employed”  Change in scale means that all factors of production are increased or decreased in same proportion.  The cost advantage that arises with increased output of a product.  It arises because of the inverse relationship between the quantity produced and per-unit fixed cost.  Profit refers to the excess of receipts from the sale of goods over the expenditure incurred on producing them.  The amount received from the sale of goods is known as ‘revenue’ and the expenditure on production of such goods is termed as ‘cost’. The difference between revenue and cost is known as ‘profit’.  For example, if a firm sells goods for Rs. 10 crores after incurring an expenditure of Rs. 7 crores, then profit will be Rs. 3 crores.

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 Isoquant is also called as equal product curve or production indifference curve or constant product curve. Isoquant indicates various combinations of two factors of production which give the same level of output per unit of time.  Just as an indifference curve represents various combinations of two goods which give a consumer equal amount of satisfaction, an iso-product curve shows all possible combinations of two inputs physically capable of producing a given level of output. Since an iso-product curve represents those combinations which will result in the production of an equal quantity of output, the producer would be indifferent between them.  This law was given by Alfred Marshall in his book principle of economics.  It show particular pattern of change in output when some factor remain fixed.  Production depend upon factors of production , if factors of production are good, production may increase and vice-versa.  Production function show functional relationship between production and factors of production.  It refers to manner of change in output cost by the increase in all the input simultaneously and in the same proportion.  Returns refers to “change in physical output”  Scale refers to “quantity of input employed”  Change in scale means that all factors of production are increased or decreased in same proportion.  The cost advantage that arises with increased output of a product.  It arises because of the inverse relationship between the quantity produced and per-unit fixed cost.  Profit refers to the excess of receipts from the sale of goods over the expenditure incurred on producing them.  The amount received from the sale of goods is known as ‘revenue’ and the expenditure on production of such goods is termed as ‘cost’. The difference between revenue and cost is known as ‘profit’.  For example, if a firm sells goods for Rs. 10 crores after incurring an expenditure of Rs. 7 crores, then profit will be Rs. 3 crores.

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Law of diminishing returns

1. LAW OF DIMINISHING RETURNS

2. The law states that when successive units of a variable input work with a fixed input beyond a certain point the additional product produced by each additional unit of a variable, input decreases.