Laws of variable proportion or the law of diminishing return.

 

LAW OF DIMINISHING RETURN:

ASSUMPTION:

This is the most fundamental law of economics based on the actual experience of farmers. A Scottish famer is said to have been first to state this law. This has been explained by Marshall in following words:

"An increase in the capital and labour applied in the cultivation of land causes in general a less than proportionate increase in the amount of produce raised unless it happens to coincide with improvement in the art of agriculture." 

The law is generally applied in the field of agriculture. This law states that every increase in the doses of capital labour and other inputs lead to increase in total output and this increase is less than proportionate increase compared to inputs. The law of diminishing returns operate on account of the following assumptions.

(i) There is fixed factors of production and the variable factors alongwith fixed factor or production do not receive full attention and co-operation. As a result of this the productivity of the variable factors goes on diminishing.

(ii) Agricultural outputs are exposed to vagaries of climate and weather conditions. Due to this reason the average productivity has a tendency to fall.

(iii) Division of labour and specialisation which help a lot in reducing the cost of production is not applied in agriculture.

(iv) Agriculture field are spread over a large areas, making the task of supervision difficult. Due to lack of supervision the productivity falls thus setting the law of diminishing return into motion.

(v) The fertility of soil is exhausted after sometime. This leads to operation of the law of diminishing returns to agriculture.