law of diminishing return

law of diminishing return states that as successive units of a variable factor (e.g. land), the output will increase at first but it will get to a point at which the addition of one more unit of the variable factor will result in fewer additional units of output

Diminishing returns is an economic concept that refers to a situation where the addition of more resources or inputs to a production process leads to a proportionally smaller increase in output or productivity.

In other words, as you continue to increase a particular input while keeping other factors constant, the incremental gains achieved from each additional unit of that input become smaller over time.

The concept of diminishing returns is based on the idea that there are limits to the productive capacity of any given input in a production process.

Initially, when you add more of productive input, such as labour or capital, the output increases at an increasing rate. However, as you continue to add more of the same input, the output eventually starts to increase at a decreasing rate, and eventually, it may even start to decline.

Explain the law of diminishing return

The law of diminishing returns, sometimes called the law of variable proportions, is applicable to both the agricultural and industrial sectors that use both the fixed and variable factors of production.

Application of the law of diminishing return

The law of diminishing returns can be illustrated using. the table represents the quantity of yam produced by Mr Bush Tailor in his one-hectare farm.

illustrating the law of diminishing return on yam production

Fixed factor (Land)important uses of land
Labour Unit (Variable Factor)
Total Output (kg)
Average Output (kg)
Marginal Output (kg)

what is Average Output and Marginal Output in law diminishing return?

As Mr Emuren Oyo employs one labour to work on his one-hectare farm, 10 tons of yam were produced. As more and more labour is employed in every successive round of production, the total output continues to increase from 10 to 30, to 60, to 120 and so on.

But as the fifth (5th) labour was used or employed, there was a drop in production from 120 to 100. This is the stage at which the law of diminishing returns sets in as every additional unit of labour brings about a decrease in the total output

Importance of the law of diminishing returns

The proper combination of factors of production: The law of diminishing returns helps the entrepreneur to combine properly the factors of production to prevent wastage which could lead to the law of diminishing return

Changes in scale of production: The law of diminishing returns helps entrepreneurs to change the scale of production through the variation of the quantities of all input can trigger the law of diminishing return

It ensures efficiency: As more and more variable factors are added to a fixed factor, it eventually comes to a profitable level and productivity and efficiency are maintained using labour that requires little or no formal education. read more on skilled and unskilled labour here

They do not use mental effort,
rather, they make use of physical effort or energy in production, hence their jobs are popularly referred to as brown-collar jobs.

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It ensures efficiency: As more and more variable factors are added to a fixed factor, it eventually comes to a profitable level and productivity and efficiency are maintained using labour that requires little or no formal education. read more on skilled and unskilled labour here