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The law of diminishing returns is a fundamental principle of both micro and macro economics and it plays a central role in production theory. [ 5 ] The concept of diminishing returns can be explained by considering other theories such as the concept of exponential growth . [ 6 ]
Amdahl's law does represent the law of diminishing returns if one is considering what sort of return one gets by adding more processors to a machine, if one is running a fixed-size computation that will use all available processors to their capacity. Each new processor added to the system will add less usable power than the previous one.
Diminishing marginal returns means that the marginal product of the variable input is falling. Diminishing returns occur when the marginal product of the variable input is negative. That is when a unit increase in the variable input causes total product to fall. At the point that diminishing returns begin the MP L is zero. [12]
In the law of diminishing marginal returns, the marginal product initially increases when more of an input (say labor) is employed, keeping the other input (say capital) constant. Here, labor is the variable input and capital is the fixed input (in a hypothetical two-inputs model).
The total cost curve, if non-linear, can represent increasing and diminishing marginal returns.. The short-run total cost (SRTC) and long-run total cost (LRTC) curves are increasing in the quantity of output produced because producing more output requires more labor usage in both the short and long runs, and because in the long run producing more output involves using more of the physical ...
Point B is the point beyond which there are diminishing average returns, as shown by the declining slope of the average physical product curve (APP) beyond point Y. Point B is just tangent to the steepest ray from the origin hence the average physical product is at a maximum.
The law of diminishing marginal returns points out that as more units of a variable input are added to fixed amounts of land and capital, the change in total output would rise firstly and then fall. [15] The length of time required for all the factor of production to be flexible varies from industry to industry.
The law of diminishing returns states the marginal cost of an additional unit of production for an organisation or business increases as the quantity produced increases. [8] Consequently, the marginal cost curve is an increasing function for large quantities of supply.