Nisha Sharma posted an Question
August 02, 2021 • 20:05 pm 30 points
  • Commerce

Causes of diminishing factor

1 Answer(s) Answer Now
  • Durgesh rawat

    Causes of Diminishing Marginal Returns At a certain point in production, businesses start to become less productive. In economics, this is an important concept as efficiency starts to decrease at this point. Businesses may wish to stop production or re-assess its pricing strategy as the marginal cost increases. There are many causes of diminishing marginal returns. Examples include:  Fixed Costs Lower levels of Productivity Limited Demand Negative Impact on Working Envrionment Short-run 1. Fixed Costs Diminishing Returns can occur when a business needs to purchase new capital equipment or other fixed cost. For example, a manufacturer may create a new factory, but it may produce less than existing factories – therefore creating diminishing returns. 2. Lower levels of Productivity At a certain point, hiring an additional worker can be counterproductive. For example, 2 staff in a coffee house may be enough. However, a third, fourth, or fifth employee may create a chaotic environment that is inefficient. They may also start talking with each other rather than working on tables. 3. Limited Demand A firm may hire an additional worker to satisfy demand, but they may not cover the full output that the employee is capable of. For example, an employee may be able to produce 10 units, but there is only demand for 5. Therefore, the employee only produces 5, resulting in diminishing returns. We may see this in local stores which see a low footfall. 4. Negative Impact on Working Envrionment On occasion, employing more people can disrupt others. For example, squeezing more workers into the same office may create an uncomfortable atmosphere. Similarly, bringing in a new piece of machinery might create unintended consequences. For instance, it may alter the room temperate, thereby affect the quality of other products. 5. Short Run The law of Diminishing Marginal Returns can only occur in the short-run. This is because all factors are variable in the long-run. For example, having an additional worker in the cafe may create for a chaotic environment. However, the employees may learn to work more efficiently together and therefore produce better returns in the long-term.

  • Anju bala

    diminishing returns is also known as increasing cost. causes as given in attachment

  • Rucha rajesh shingvekar best-answer

    The main factors that cause diminishing returns are: When a given quantity of a fixed factor is combined with successively larger amount of the variable factor, the successive units of the variable factors will get smaller and smaller share in total quantity of the fixed factor to work with them. In economics, diminishing returns is the decrease in marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, holding all other factors of production equal (ceteris paribus). Causes of Diminishing Marginal Returns Fixed Costs. Lower levels of Productivity. Limited Demand. Negative Impact on Working Envrionment. Short-run.


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