Answer :

Diminishing returns to a factor means that total product or TP increases at a diminishing rate and marginal product or MP falls but remains positive when more units of a variable factor are employed with a given amount of fixed factor.

The two reasons for the operation of diminishing returns to a factor are given below:

i-Factors of production can be substituted for one another, but only till a certain limit. For example, labour can be replaced with machinery or vice-versa but only till a limit. Beyond this, substituting factors is not possible. The factors are imperfect substitutes leading to diminishing returns.

ii- After achieving the optimum combination of variable and fixed factors, the level of efficiency begins to fall, when more units of a variable factor are employed. Thus, the marginal product begins to fall.

Rate this question :

How useful is this solution?
We strive to provide quality solutions. Please rate us to serve you better.
Try our Mini CourseMaster Important Topics in 7 DaysLearn from IITians, NITians, Doctors & Academic Experts
Dedicated counsellor for each student
24X7 Doubt Resolution
Daily Report Card
Detailed Performance Evaluation
view all courses

Define fixed costEconomics - Board Papers

When the total fiEconomics - Board Papers

<span lang="EN-GBEconomics - Board Papers