MB 504 - Microeconomics for Managers

Assignment - 2

Name – Manish Shekhar

Roll No. – 2401res78

Program Name – E-MBA

Semester – 1

Subject - Microeconomics for Managers

Submission Date – 18-April-2024

 Assignment 2

MB504

Read the following points and respond to the subsequent questions with a minimum of 150
words.

Diminishing Returns is a concept, or more exactly, an empirical finding that displays up in

majorities of activities noticed in microeconomics. The curve in the graph below presents the
concept of Diminishing returns. Just think what variables can be on vertical and horizontal axis.

This concept is well discussed in our classes and managers must know how this concept works
in consumption (utility), and in production and costs. Considering above facts:

A. Write down main causes which works behind diminishing returns?

B. Have you ever experienced this principle at work in a firm/office where you are working?

C. Describe how you’ve observed this concept in the actual world; you can take examples from
agriculture, manufacturing, or any Services activities.
Solution: -

A. Write down main causes which works behind diminishing returns?

The law of diminishing returns states that in productive processes, increasing a factor of
production by one, while holding all others constant, will at some point return lower output per
incremental input unit.

Let’s say you have a corn field and you are trying to increase the yield with fertilizer. While
adding fertilizer initially will lead to a sharp increase in yield, this increase tapers off when an
optimal amount of fertilizer has been added.

The point when it tapers off is called the point of diminishing returns, and every unit of fertilizer
from this point on will give you a smaller increase in corn yield, even though this fertilizer is the
exact same quality as before. This is known as diminishing returns.

If you keep adding more fertilizer beyond this point, you will eventually get negative returns,
where your total yield decreases because the field is over-fertilized!

Causes of Diminishing Returns: The principle of diminishing returns, also known as the law of
variable proportions, states that if one factor of production is increased while others are held
constant, the overall returns will relatively decrease after a certain point. This happens due to
the following reasons:

- Imbalance in Factor Proportions: When more of one input (like labor) is added while keeping
other inputs (like machinery) constant, it leads to an imbalance in the ratio of inputs used,
causing inefficiency.

- Overutilization of Fixed Resources: As more variable input is added to a fixed resource, the
resource becomes overutilized, leading to a decrease in the marginal product of the variable
input.
B. Have you ever experienced this principle at work in a firm/office where you are working?

Yes. We often experience this in workplaces. We are living in online meeting era and meetings
are part of day-to-day work. The first hour of a work meeting is usually the most productive,
while the subsequent second or third hour, not so much. When a meeting drags on endlessly, it
becomes a time suck for everyone involved. The same can be observed when you have an
excessive number of meetings each week.

C. Describe how you’ve observed this concept in the actual world; you can take examples from
agriculture, manufacturing, or any Services activities.

Real-world Examples of Diminishing Returns:

- Agriculture: If a farmer uses more fertilizer on a fixed plot of land, the crop yield may increase
initially. But after a certain point, adding more fertilizer doesn't increase the yield and may even
harm it.
- Manufacturing: In a factory with a fixed number of machines, hiring more workers may initially
increase output. But beyond a certain point, adding more workers may lead to overcrowding,
resulting in lower efficiency and less output per worker.

- Services: In a restaurant, hiring more chefs in a fixed-size kitchen may initially reduce cooking
time. But if the kitchen becomes too crowded, it could lead to confusion and longer cooking
times, demonstrating diminishing returns.

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