Talk:Law of diminishing returns

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Revision as of 08:06, 13 June 2008 by imported>Paul Schächterle (→‎Comments?)
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 Definition:  A concept in economic theory which states that the output per input (productivity) declines if the input of a production factor is increased over a certain limit. [d] [e]
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Comments?

Hi there! I had started the article as a raw draft on my user page. After I received feedback on my draft article I decided to put it up for discussion. --Paul Schächterle 14:45, 15 May 2008 (CDT)

I have advised Paul that this article is generally inaccurate, and I have suggested making a fresh start. Nick Gardner 11:30, 16 May 2008 (CDT)

I suggest that this article should now be deleted Nick Gardner 16:00, 6 June 2008 (CDT)

Frankly, I find the argument the article was generally inaccurate very vague. So just deleting the article does not seem right to me. I currently do not have the time to recheck everything. So I would be interested in a third opinion. Or Nick, you could make an alternative draft for the article. Of course I see and appreciate that you already have put a lot of work in a lot of other articles. --Paul Schächterle 11:12, 12 June 2008 (CDT)

In the approved article on microeconomics, to which I referred you previously, the law of diminishing returns is stated as:-

diminishing returns refers to the observation that if one only of the factors is progressively increased, leaving the others unchanged, output rises, at first in proportion, but subsequently less than proportionately to the rising input. For example, although doubling the number of workers on a building site might get the job done twice as fast, it does not follow that trebling that number would get it done three times as fast.

You will note that the question of the optimal combinations of factors does not arise, nor does it state that there are circumstances in which an increase of the variable factor will result in a decrease of the overall product. Those are two respects in which this article is wrong. I suggest that you withdraw it. Nick Gardner 01:04, 13 June 2008 (CDT)

I.m.h.o. the increase of one factor of production while another factor is fixed indeed is a question of an optimal combination (or proportion) of factors. The first author to formulate the law (Turgot) described it using as an example labour and soil. But we can apply the concept also to your example of a construction site.
Suppose we have one construction site (fixed) and a variable number of workers. To understand the (classical) law of diminishing returns (LDR), we have to consider the construction site to be a means of production, like a set of tools and machines. The product is then a building. Of course a building is not a continuous product but one with a fixed end size. Still we can measure input and output for a given period of time as long as the construction is not completed. Output can be measured in percentage of the construction completed.
  • If we let only one worker do the work, we will see a very low percentage completed.
  • If we increase the number of workers, the percentage completed will rise. According to the LDR adding the second worker will increase the percentage more than twice, because two workers can make better use of the construction site. Thus marginal productivity rises: The second worker adds more output than the first.
  • If we have reached a certain number of workers, an additional worker will add just as much as or less output than the previous worker added. From that point on marginal productivity declines. The point with the highest marginal productivity is the optimal proportion between fixed and variable resource, in our example between workers and construction site.
  • If we continue to add more workers to the site from a certain point on an additional worker will not add more output because her/his work force cannot be utilized on the site. If we still add more workers the additional workers start to get counterproductive and will reduce the amount of output instead of raising it.
If you visit the german or spanish Wikipedia site, you will find similar expressions and a graph like the one used in this article. –-Paul Schächterle 08:32, 13 June 2008 (CDT)
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