![]() However, this is not true in the real world. Thus, there would be no starvation and recession. As the demand increases with the increase in population, more labour and capital can be used to increase the output. The whole population can be fed by growing crops on tiny pieces of land. Suppose if there are no diminishing returns to scale, the production in an economy can be increased by increasing the number of labour and capital. The validity of the law of diminishing returns is based upon the empirical evidence. A marginal product becomes negative at this stage.įigure 1 shows the graphical representation of the three stages of production: After that, the total output starts declining. As shown in Table 1, the total output reaches to maximum level at the 8th worker. Stage III: Negative returns: It refers to the stage of production in which the total product starts declining with an increase in the number of workers. Table 1 shows the declining of marginal product as the number of workers reaches 4. Stage II: Diminishing returns: It refers to the stage of production in which the total output increases, but marginal product starts declining with the increase in the number of workers. Table 1 shows the increase in the marginal product till the number of workers increased to 3. Stage I: Increasing returns: It refers to the stage of production in which the total output increases initially with the increase in the number of labour. In Table 1, the last column shows the three stages of production, which are explained as follows: After using the 8 units of labour, the MP of labour starts becoming negative. Beyond this point, the MP of labour starts decreasing. Stages of Production (on the basis of MP L)įrom Table 1, we can see that MP of labour rises till 3 units of labour. Table shows the law of diminishing returns: No. ![]() Q= f (L), K Q = Total Production L = Labour K = Capital (Constant) ![]()
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