Question

Explain two causes of diminishing returns to a variable factor.

Answer 1

1. Disproportion between fixed and variable factors:
   1. As more units of a variable factor (like labor) are added to fixed factors (like land or machinery), the fixed factors become insufficient relative to the increasing variable input.
   2. Each additional worker has less capital or land to work with, reducing their individual contribution.
   3. Example: Adding more farmworkers to a fixed-size field results in each having less space to work productively.
2. Overutilisation of fixed inputs:
   1. Fixed inputs get overused as variable inputs increase, leading to congestion, strain, and reduced efficiency.
   2. This causes the marginal productivity of each new unit of the variable factor to decline.
   3. Example: Too many workers using a single machine leads to waiting time, interference, and inefficiency.