For instance if plant is expanded by installing more

For instance, if plant is expanded by installing more machines, it may become unwieldy.
Entrepreneurial control and supervision become lax, and diminishing returns set in. Or,
there may arise scarcity of trained labour or raw material that leads to diminution in output.
In fact, it is the scarcity of one factor in relation to other factors which is the root cause of
the law of diminishing returns. The element of scarcity is found in factors because they
cannot be substituted for one another.
Mrs. Joan Robinson explains it thus : “What the Law of Diminishing Returns really states
is that there is a limit to the extent to which one factor of production can be substituted for
another, or, in other words, that the elasticity of substitution between fa ctors is not infinite.”
Suppose there is scarcity of jute, since no other fiber can be substituted for it perfectly,
costs will rise with production, and diminishing returns will operate. This is because jute
is not in perfectly elastic supply to the industry. If the scarce factor is rigidly fixed and it

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cannot be substituted by any other factor at all, diminishing returns will at once set in. If in
a factory operated by electric power, there being no other substitute for it, frequent power
breakdowns occur, as is commonly the case in India, production will fall and costs will rise
in proportion as fixed costs will continue to be incurred even if the factory works for less
hours than before. According to Wicksteed, the law of diminishing returns “is as unive rsal
as the law of life itself.’ The universal applicability of this law has taken economics to the
realm of science.
9.9.3 Stage-III: Negative Marginal Returns
Production cannot take place in stage III either. For in this stage, total product starts
declining and the marginal product becomes negative. The employment of the 8th worker
actually causes a decrease in total output from 150 to 140 units and makes the marginal
product minus 10. In figure 63, this stage starts from L
3
where the MP curve is below the
A’ -axis. Here the workers are too many in relation to the available land, making it
absolutely impossible to cultivate it.
9.10 The Best Stage of Production
To make the things simple, let us suppose that, a is variable factor and b is the fixed factor.
And a
1
, a
2
, a
3
….are units of a and b
1
b
2
b
3
…… are unit of b. Stage I is characterized by
increasing AP, so that the total product must also be increasing. This means that the
efficiency of the variable factor of production is increasing i.e., output per unit of a is
increasing. The efficiency of b, the fixed factor, is also increasing, since the total product
with b
1
is increasing.
The stage II is characterized by decreasing AP and a decreasing MP, but with MP not
negative. Thus, the efficiency of the variable factor is falling, while the efficiency of b, the
fixed factor, is increasing, since the TP with b
1
continues to increase.