Wednesday, August 5, 2015

Law of diminishing marginal product

Links to all courses
While increasing one input and keeping other inputs fixed may initially increase output, further increases in that input will have a limited effect, and eventually no effect or a negative effect, on output.
In other words, the MP of Xwill eventually decline as the amount of input (X) i.e x1  is increased, holding all other inputs fixed i.e  x2fixed.
This law does not hold if both inputs are increased. 
As an example, let’s consider a pizza restaurant that wants to increase profitability. Increasing the amount of cheese (the input) that goes on each pizza can create a more delicious product and sell more pizzas. But at some point, the pizza reaches an optimal cheese level. The amount of cheese must be balanced with the crust thickness, amount of sauce and other pizza toppings, if any. If the restaurant continues to add more cheese to the pizza beyond the optimal level, its sales will decline because customers will not enjoy pizzas that leave them with a mouthful of cheese and little else.

If the pizza restaurant wants to continue to increase its profitability after optimizing the amount of cheese on its pizzas, it might look at increasing a different input, such as pepperoni or sausage, or adding another product, such as chocolate gelato

No comments:
Write comments

Hey, we've a very popular astronomy portal in Bangla language. If You know Bangla, You'll like it - sky.bishwo.com
Join Our Newsletter