Question

‘Increasing capital per labour increases output at a decreasing rate’ refers to the idea of

a.economic development.

b. diminishing returns.

c.accumulation of labour.

d.none of the statements above are correct.

Answer 1

Increasing capital per labour increases output at a decreasing rate refers to the idea of (b)dimnishing returns:The theory of dimnishing returns states that after reaching a particular point of optimal capacity any additional labour will increase the output only at a decreasing rate.An example for the dimnishing returns is where the manufacturer is hiring workers .with all the other factors of production remaining constant hiring workers beyond the optimal level or optimal capacity it will result in less efficiency of production.
The dimnishing returns can be explained with diagram given below.In the diagram point A represents the point of dimnishing returns.Beyond this point if there is an increase in labour will only lead to reduction in the yield or output.

B B Point of maximür yield dennisting I DP minishing Returns point of retung * 1 Negative Returns 1 TOTAL OUTPUT Most Productive TOTAL INPUT