Page 5 - Lesson notes-Production Function(38)

(ii) Instead of helping each other in production they cause overcrowding and chaos and
thus hamper each other’s work. In such a case, the contribution of additional labour to
production is bound to be negative.
(iii) Thus, the marginal returns become negative and the total returns start diminishing.
(c) Efficiency of Fixed Factor Fall
(i) Too much of a variable factors may also lead to the inefficiency of the fixed factor as
well.
(ii) In case of machine, which is a fixed factor, too much of labour may cause lot of wear
and tear of machinery, frequent breakdowns and excessive cost of maintenance. This is
bound to affect total production adversely.
(iii) In such a situation it is advisable to reduce the units of the variable factor than to
increase it with a view for getting maximum production.

Law Of Diminishing Marginal Returns

1. The Law of diminishing marginal return states that when we applied more and
more units of variable factor to a given quantity of fixed factor, total product increases at
a diminishing rate and marginal product falls.
2. Law of diminishing marginal returns is a classical theory and classical economists
treated it as a separate Law. But according to modern economists, this law indicates
just one aspect (aspect of diminishing returns) of law of variable proportion.
3.

In the above schedule and diagram when more units of variable factor are employed
with a given quantity of fixed factor TP increases at a diminishing rate or MP goes on
falling. That is why shape of MP curve is a downward sloping.