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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 ofthe law of diminishing returns. The element of scarcity is found in factors because theycannot be substituted for one another.Mrs.Joan Robinson explains it thus : “What the Law of Diminishing Returns really statesis that there is a limit to the extent to which one factor of production can be substituted foranother, or, in other words, that the elasticity of substitution between factors 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 juteis not in perfectly elastic supply to the industry. If the scarce factor is rigidly fixed and it
216cannot be substituted by any other factor at all, diminishing returns will at once set in. If ina factory operated by electric power, there being no other substitute for it, frequent powerbreakdowns occur, as is commonly the case in India, production will fall and costs will risein proportion as fixed costs will continue to be incurred even if the factory works for lesshours than before. According to Wicksteed, the law of diminishing returns “is as universalas the law of life itself.’ The universal applicability of this law has taken economics to therealm of science.9.9.3 Stage-III: Negative Marginal ReturnsProduction cannot take place in stage III either. For in this stage, total product startsdeclining and the marginal product becomes negative. The employment of the 8th workeractually causes a decrease in total output from 150 to 140 units and makes the marginalproduct minus 10. In figure 63, this stage starts from L3where the MP curve is below theA’-axis. Here the workers are too many in relation to the available land, making itabsolutely impossible to cultivate it.9.10 The Best Stage of ProductionTo make the things simple, let us suppose that, a is variable factor and b is the fixed factor.And a1, a2, a3….are units of a and b1b2b3…… are unit of b.Stage I is characterized byincreasing AP, so that the total product must also be increasing. This means that theefficiency of the variable factor of production is increasing i.e., output per unit of a isincreasing. The efficiency of b, the fixed factor, is also increasing, since the total productwith b1is increasing.The stage II is characterized by decreasing AP and a decreasing MP, but with MP notnegative. Thus, the efficiency of the variable factor is falling, while the efficiency of b, thefixed factor, is increasing, since the TP with b1continues to increase.

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Term
Fall
Professor
NoProfessor
Tags
Economics, Test, The Wealth of Nations, Positive and Normative Economics, Lionel Robbins, Positive Economics vs Normative Economics, Classical Definition of Economics, Economics and Welfare

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