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Economics notes

# Law Of Diminishing Returns (Law Of Variable Proportions)

➡️ Total Product (TP): Total Product is the total output produced by a given number of inputs. It is calculated by multiplying the quantity of inputs used by the quantity of output produced.
➡️ Average Product (AP): Average Product is the average output produced by a given number of inputs. It is calculated by dividing the total product by the number of inputs used.
➡️ Marginal Product (MP): Marginal Product is the additional output produced by an additional input. It is calculated by dividing the change in total product by the change in the number of inputs used.

### What is the law of diminishing returns and how does it affect production?

The law of diminishing returns states that as more and more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decrease. This means that at some point, adding more of the variable input will not result in a proportional increase in output. This can lead to inefficiencies in production and increased costs.

### How can businesses overcome the law of diminishing returns?

Businesses can overcome the law of diminishing returns by optimizing their production processes. This can involve finding the optimal level of the variable input to use, investing in new technology or equipment, or improving the skills of their workers. By doing so, businesses can increase their output without incurring additional costs.

### What are some real-world examples of the law of diminishing returns in action?

One example of the law of diminishing returns in action is in agriculture. As more and more fertilizer is added to a field, the marginal increase in crop yield will eventually decrease. Another example is in manufacturing, where adding more workers to a production line may initially increase output, but eventually the marginal product of each additional worker will decrease.

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