Question

What do you understand by the law of diminishing returns? Can you give an example of when diminishing returns have set in at the place you work? If diminishing returns have set in then what do you think is happening to the short run costs?Why?

Answer 1

Law of diminishing returns says that marginal output of a firm start declining when there is same rise in input. Diminishing returns set in when more labor is hired. For initial labor hired, marginal output rises while it starts falling when after a specific point. In my organization, marginal output starts falling when the machine gets obsolete and I was not in the situation to update them to time or replace them with new phone. Due to diminishing return, there must be rise in short run cost.