Applications (importance) of the law of Diminishing returns
- It makes it possible for the producers to determine the optimum level of a variable factor which can be combined with fixed factor to yield maximum output.
- It’s used as a basis for the formulation of the law of diminishing marginal utility under the theory of demand. .
- The law forms the basis of Malthusian population theory which explains the relationship between population growth and food supply.
- It forms the basis of the marginal productivity theory of wages. That is a wage given to workers should be equal to the value of his/her marginal product.
- The law helps the producer to determine the profit maximizing level of output that is profits are maximized were marginal product is at maximum.
CATEGORIES Economics
TAGS Dr. Bbosa Science
