Fisheries Economics

3.1.4. Law of diminishing returns

This law is perhaps  one of the oldest laws of economics. The classical economists thought it applied principally to agriculture. Alfred Marshall defined the law of diminishing returns as follows:

“An increase in the capital and labour supplied to the cultivation of land causes, in general, a less than proportionate increase in the amount of produce raised, unless it happens to coincide with an improvement in the arts of agriculture”.

In agriculture, the marginal returns decrease successively. Marginal returns means additional returns. Since the marginal returns decrease successively, this law is called as law of diminishing marginal returns.

According to the law in agriculture steady increases in land and labour will not lead to steady increase in output. If the level of use of land and labour is doubled, for example, it will not double the output.

In other words, the output decreases or diminishes.

The law has two limitations:

1) It is assumed that there is no improvement in the technology of production

2) The land quality is known fully and it is utilized fully.

This law is applied in agriculture, fisheries, mining, and manufacture and in many sectors of production.

The law of diminishing returns is also known as law of increasing costs.

Modern economists classify factors involved in production as fixed and variable factors in the short-rum. When the factors are combined in variable proportions, this law operates and hence it is called as law of variable proportions. When the level of use of inputs increases the cost incurred also increases. Therefore, this law is also known as law of increasing costs.