Resources have to be utilized efficiently to allot the scarce resources effectively to satisfy the unlimited wants of the members of the society. To achieve this, the principles of economics are studied. These principles govern the different aspects of the economy, such as employment, stocks, and overall growth of the economic activities. These principles also attempt to explain the different phenomena that are happening in the economy. One of these principles which govern economics activities is the law of diminishing returns or the laws of diminishing marginal returns.
The law of diminishing returns states that “as successive units of a variable resource (labor) are added to a fixed resource (capital or land), beyond some point, the extra, or marginal, product that can be attributed to each additional unit of the variable resource will decline” (McConnell and Brue 395). This law attempts to explain the decline in the additional produced output as more resources are added to the economic system. It considers various factors that always exist and have an effect in the production process. Resources are scarce and there is also scarcity in the supply of that particular product or service.
The scarcity differs in one place or another, and there are times when they are interchangeable. The law of diminishing return explains the correlation of these variables (Onyemelukwe 72). However, the law only applies in a short-run type of system since in this type of system, only variable resources can be added. As the variable input is added into the system, there will come a time when the output (i.e., the products or services) will decline (Hoag and Hoag 123).
To illustrate how the concept of the law of the diminishing marginal returns works, McConnell and Brue used as an example a farmer who has 80 acres of land planted with corn (395). According to the two authors, if the farmer does not clear the land, he will only produce 40 bushels per acre. If he starts to cultivate the land and clear it once, he will produce 50 bushels per acre. If he cultivates again the land for the second time, he will produce 57 bushels per acre, 61 on the third, and 63 on the fourth (McConnell and Brue 395).
For a simpler and more practical example, consider the case of a student whose learning depends on the quality of course materials, the effectiveness of the instructor, and the time spent in class and self-studying. Let us assume that the quality of course materials, the effectiveness of the instructor, and the time spent in class is constant. The additional course learning now depends on the time spent in self-studying. The first hour spent in self-studying is beneficial, and more knowledge can be absorbed by the first hour of studying.
By the second hour, although there is knowledge that can be absorbed, the amount of absorbed knowledge is not equal to the knowledge absorbed by the first hour. As the length of the time spent in studying increases, the amount of knowledge absorbed gradually decreases (McConnell and Brue 395).
Hence, the law of diminishing marginal return explains that, in a short-run system, there is a decrease in quantity of the products or decrease in the quality of the service produced at a certain point. When more resources are added to the system, the output will slowly decrease. This is an important phenomenon in the economy. By applying this law, the amount of output or products of a short-run system can be forecasted or estimated.
Hoag, Arleen J. and John H. Hoag. Introductory Economics. Singapore: World Scientific Publishing, 2006.
McConnell, Campbell R. and Stanley L. Brue. Economics: Principles, Problems and Policies. New York: McGraw-Hill/Irwin, 2005.
Onyemelukwe, Clement Chukwukadibia. The Science of Economic Development and Growth. New York: M.E. Sharpe, Inc., 2005