Question

Most business want to grow their business; however, this growth can be a bad thing if a company is not careful. The law of diminishing marginal returns explains this phenomenon. It states that as you produce more your marginal productivity will decline (Froeb, McCann, Shor, & Ward, 2016). In layman’s terms what this is saying is that when you increase output there will eventually be a decline in your total productivity and/or profit. The reason for this is the fact that costs will eventually increase. By adding productivity, you have to add one, a mix, or all of the three scarce resources: land, labor, and capital.

An example of minimizing the law of diminishing marginal returns, we can look at the Cascade dish drop-ins for a dishwasher. They currently have a higher end or what they call Platinum and a re-branded basic, formally know as Complete, called Total Clean. Cascade utilized economies of scale by using some of the same ingredients but further processing the higher end Platinum at some point in the joint production process. If the company ran into issues with producing the two, they could stop production of one or the other. Existing customer would likely still buy the brand as they have become loyal to the brand. This could then decrease costs as adding larger orders of the same product will reduce costs of packaging alone for the two product lines.

Please respond in at least 150 words

Answer 1

The law of diminishing marginal returns states that as the firms start producing more and more output the marginal productivity starts decreasing after the maximum productivity has been reached. This happens because with the aim of maximizing the production the costs of the producer start increasing and the marginal productivity starts decreasing.

If the costs can be controlled by the producer by some methods then the effect of this diminishing marginal returns can be minimized.

In the above given problem if the CASCADE co. produces both the goods in the same production process then the costs which would have been incurred by producing through the separate processes will not be incurred.

The co. by producing the goods in the same production process and using the same ingredients in the second product could enjoy lesser costs with the advantage of the economies of scale. The faith of the consumers will encourage the producer to produce both the goods and he will not have to stop the production of any of the good to protect himself from diminishing marginal returns but he can reduce the effect of diminishing marginal returns by minimizing the costs by using the same ingredients in the second good and also using the same production process to produce the other commodity.