Law Of Diminishing Returns Or Variable Proportion

This law refers to a short run production situation.  The law of diminishing returns states that as more of the variable factor (e.g. labour or capital) is added to other factors which are constant (e.g. land), outputs will eventually increase at a decreasing rate.

The law of diminishing returns follows three stages, these are;

1. Increasing returns
2. Constant returns
3. Decreasing returns

CONCEPT OF TOTAL PRODUCT (TP), AVERAGE PRODUCT (AP) AND MARGINAL PRODUCT (MP)

1. TOTAL PRODUCT (TP): Total product refers to the total quantity of goods produced at a particular time as a result of the use of all the factors of production.

Symbolically written as TP = AP X Q