Law of Diminishing Returns for a Farmer

Law of Diminishing Returns

The Law of diminishing returns states that, if one of the variable is increased in the production process there will be decrease in output with respect to marginal per unit output with other factors as constant. Law of Diminishing Returns can also be called as Law of Diminishing Marginal Returns. When the usage of an input increases, a point will be eventually reached at which the resulting additions to output decrease.

Example:

Let us assume that, a farmer with an acre of land with a corn crop. To cultivate the crop, farmer needs fertilizers, water and labour. Assume that the farmer already decided about the quantity of water and labour is required for the season. He need to decide on the quantity of fertilizer. When he increases the usage of fertilizer, the corn crop production will be increased. But, there may be a point that if the fertilizer is used to a greater extent, the crop may turn into poisonous.

The Law of Diminishing Returns states that the additional usage of fertilizers increases the production, the less usage of fertilizers will decrease the production. The cost of fertilizers and the production is related to marginal output.