There are several ECON1020 principles of economics including the law of diminishing returns. The basic five principles of economics explain the way the world handles money and decides which investments are worth it. Similarly, the law of diminishing returns is a theory in economics that predicts that after some optimal level of capacity that a business reaches, adding a factor of production results in a smaller increase in output. Moreover, it plays a key role in the production theory. It implies that the total output initially increases with an increase in variable input. Often at a given quantity of inputs but starts decreasing after a point in time.
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THE BASIC ECON1020 PRINCIPLES OF ECONOMICS
Primarily, there are five basic ECON1020 principles of economics. They include opportunity cost, marginal principle, the law of diminishing returns, principle of voluntary returns, and nominal principle. The opportunity cost concept demonstrates that people give up one thing to have another after calculating the value and cost to find the most suitable option. The law of diminishing returns shows that if one output of production increases while keeping the other factors constant, there will be an increase in output but the rate decreases gradually.
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ASSUMPTIONS OF THE LAW OF DIMINISHING RETURNS
The law of diminishing returns states that adding a production unit in the production process produces an increase in output that decreases over time. However, this only applies on a short-term basis. This is because over long periods, even the factors of production that are constant eventually become variable. Additionally, businesses cannot apply this law in all production scenarios. It becomes a constrain when products are less natural. It is a component of the ECON1020 principles of economics which applies mostly to agricultural production. Moreover, the law assumes that all units of a single factor of production should be identical which is difficult to apply in practical applications.
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