Changes in production volume and costs in the short term. Law of Diminishing Returns

2 Law of diminishing returns.

The interchangeability of production factors provides the commodity producer with production choice. However, in real life a particular entrepreneur is more interested in the question of what the output will be if additional quantity resources. Let's imagine the Minsk worsted mill, where, according to technology, one weaver serves 10 looms. The number of looms can be increased while the number of weavers remains the same. Of course, an increase in machine equipment will lead to an increase in production output. But a weaver will not be able to service 15 looms as efficiently as 10, and 20 - as well as 15. Therefore, despite the general increase in the volume of output, the increase in the output of goods from the use of each subsequent loom, with the number of weavers remaining unchanged, will be less than from the previous one.

One can also imagine the opposite situation: without increasing the number of looms, hire more weavers. Then each worker will service less equipment, and the machines will work better. But the productivity of the equipment is limited, so the output of weavers will decrease.

Thus, at a certain level of scientific and technical progress, an increase in investment in the production of one type of resource while the quantity of the rest remains unchanged leads to diminishing returns from this resource, or, starting from a certain time, the sequential addition of units of a variable resource to a constant fixed resource gives a diminishing increase in this resource.

The law of diminishing returns applies under certain conditions.

1 Firstly, all units of the variable factor are homogeneous. In relation to labor, for example, this will mean that each additional worker has the same mental abilities, qualifications, skills, coordination of movements, education, work skills, etc., as previously accepted.

2 Secondly, the law assumes the constancy of the technical and technological level. If there is technical progress, then there will be a progressive shift of the total product curve towards growth.

3 Thirdly, the law presupposes the invariability of at least one factor of production.

Let's look at the effect of the law of diminishing returns using a specific example.

Law of Diminishing Returns

This hypothetical material can be used to plot the corresponding curves

3 Production. Aggregate (total), average and marginal product.

The total, or total, product (TP) of a variable factor is the total amount of output produced in physical terms, which increases as the use of one variable resource increases, all other conditions being constant.

If the total (total) product is divided by the amount of the variable factor used in production, for example labor (L) or capital (K), we obtain the indicator of average product (AP):

AP L = TP / L

where AR is the average product of the variable factor;

K - variable resource (capital) or L - variable resource (labor).

Marginal product (MP) is the additional output that is achieved by increasing the use of a variable resource while keeping the amount of other resources constant:

MP = DTP / DK or MP = DTP / DL

where MR is the marginal product of capital or labor;

DTP is a change in total output corresponding to a change in DK or DL ​​units of capital or labor used, with the number of other factors remaining constant.

The total product curve goes through three phases. First of all, it rises at an accelerating pace; then its growth occurs at a slower pace; finally reaches a maximum and begins to decline. The marginal product curve reflects the specifics of the movement of the total product. The point is that marginal product is the slope of the total product curve. Stated differently, marginal product measures the change in total product associated with the addition of an additional worker. Accordingly, all phases of the movement of the total product are reflected in the dynamics of the marginal product. While total product is growing at an accelerated rate, marginal product is increasing.

The growth phase of the total product at a slower pace corresponds to a fall in the marginal product, which retains positive value. The marginal product becomes negative when the total product reaches its maximum.

Average and marginal product are also characterized by certain dependence. As long as the marginal product exceeds the average product, the latter increases. If the marginal product is less than the average product, then the latter falls. The point E of the intersection of these two curves determines the maximum value of the average product.

Thus, production can be divided into the following stages

Stage 1. Associated with the beginning of production, when the number of labor resources is 0, and continues until the moment when the marginal product and the average are equal to each other, and the latter reaches its maximum value.

Stage 2. Begins at the moment when the average product has highest value, and continues until the marginal product of labor becomes equal to zero.

Stage 3. The marginal product becomes negative, the total product begins to decline.

In the first stage, there is, in a sense, an overexpenditure of resources, since the manufacturer incurs costs for equipment that it does not have enough workers to use. A firm could produce the same output with less capital and the same amount of labor because there is excess capacity. However, since the amount of capital is taken as a constant, it is not possible to use it in smaller amounts.

Similarly, at the third stage it is used a large number of labor in relation to capital. The marginal product of labor becomes negative because workers interfere, producers are forced to pay each other for all hours of labor, which leads to a decrease rather than an increase in output. This also happens at the first stage, when equipment that is not used due to insufficient labor resources is paid for.

It would be desirable for production organizers to avoid the first and third stages and remain in the second. Only in this case there is no excess of efficiently used labor and capital; there is no need to pay for unused factors of production.

The additional cash income generated by the sale of marginal product is income from marginal product.

It should be emphasized that the indicators of average and marginal products characterize, respectively, the average and marginal productivity of a variable resource. For example, if the variable resource is labor, then the average product of labor expresses the productivity of the “average” worker, and the marginal product expresses the labor productivity of each additional worker used in production

The essence of the law of diminishing returns of factors of production is that as the use of one resource increases while others remain unchanged, the marginal product of the variable factor will decrease. In other words, the increase in output is limited if only one factor changes. In this regard, the equality of two indicators is important - the marginal and average returns of production factors. The excess of the average return over the marginal return is a signal that the effective expansion of production by increasing the use of only the factor is no longer possible. Changes are required in the entire set of factors used.

The validity of the law of diminishing productivity of factors of production is easily illustrated by specific examples. Otherwise, for example, by involving additional workers in agriculture, it would be possible to feed the population globe from 1 ha fertile land.

The theory of marginal productivity is used only under the condition of interchangeability of factors of production. If there is no such substitutability, it is impossible to distinguish the marginal product obtained by changing one factor from the marginal product obtained by changing other factors. In this case, the additional investment of one of the factors of production, while the others remain unchanged, only leads to ineffective use of this resource without any impact on the volume of output.

The costs that an enterprise incurs in producing a given volume of output depend on the possibility of changing the amount of all employed resources. The quantities of many resources used - living labor (i.e. human labor), raw materials, fuel, energy - can be changed quite quickly. Other resources require more time to develop - for example, the capacity of an enterprise, that is, the area of ​​​​its production premises and the number of machines and equipment in it can only be changed over a long period of time. In some heavy industries, changing production capacity can take several years.

Since different amounts of time are spent on changing the amount of resources used in the production process, it is necessary to distinguish between short-term and long-term periods. Short term- during which the enterprise cannot change its production capacity, but at the same time sufficient to change the intensity of use of these fixed capacities.

The production capacity of the enterprise remains unchanged within the short term, but the volume of production can be changed by using more or less human labor, raw materials and other resources. Existing production capacities can be used more or less intensively within the short term.

Long term is a period of time long enough to change quantities everyone employed resources, including production capacity. From an industry's perspective, the long run also includes enough time for incumbents to disband and leave the industry and for new businesses to emerge and enter the industry. If the short-term period is a period of fixed capacities, then the long-term period is a period of changing capacities.

When analyzing production costs, it is important to consider the action law of diminishing returns, which states that, beginning with certain point The successive addition of units of a variable resource (for example, labor) to a constant fixed resource (for example, land) gives a decreasing additional, or marginal, product per each subsequent unit of the variable resource.

Let us illustrate the effect of the law graphically (see Fig. 1).

For example, in production premises there is equipment - lathes, milling and other machines. If a company hired one or two workers, overall production would be low because workers would have to perform many tasks moving from machine to machine. In this case, time would be lost (used irrationally), and the equipment would be idle. Production would be inefficient due to an excess of capital over labor.

These difficulties would disappear as the number of workers increased. The equipment would be more fully utilized, and workers would specialize in certain operations. However, a further increase in the number of workers gives rise to the problem of their surplus. Now workers have to stand in line to use the machine, then there are workers will be underutilized. Ultimately, the continued increase in the number of workers in the enterprise would lead to them filling all the available space and stopping the production process.

Therefore, in the graph of Fig. 1, we observe that the total volume of production first grows, reaching the point N opt, and then begins to decline, despite the increase in the amount of labor, that is, workers in the workshop.

Work theme: « The Law of Diminishing Returns."

Currently, the world is experiencing constant changes in strategies and methods, and issues this study is still relevant.

It appears that the topic analysis is the Law of Diminishing Returns. Production choice in the short term. The total, average, marginal product is quite relevant and is of scientific and practical interest.

Describing the degree of scientific development of the problem, the Law of Diminishing Returns. Production choice in the short run. Total, average, marginal product, it should be taken into account that this topic has already been analyzed by various authors in various publications: textbooks, monographs, periodicals and on the Internet. However, when studying the literature and sources, there is an insufficient number of complete and explicit studies on the topic of the Law of Diminishing Returns. Production choice in the short run. Total, average, marginal product.

The scientific significance of this work lies in the optimization and streamlining of the existing scientific and methodological base on the issues under study - another independent author’s research. Practical significance of the topic The law of diminishing returns. Production choice in the short run. The total, average, marginal product consists of analyzing problems in both time and space.

The object of the work is a system for implementing the Law of Diminishing Returns. Production choice in the short run. Total, average, marginal product.

The subject of the study is specific issues of the activity of the Law of Diminishing Returns system. Production choice in the short run. Total, average, marginal product.

The purpose of the work is to study the topic of the Law of Diminishing Returns.

1. Concept of the Law of Diminishing Returns

The topic of research into the law of diminishing returns of resources is gaining interest in scientific circles, on the other hand, as has been shown, there is insufficient development and unresolved issues.

The Law of Diminishing Returns Applies to Everyone production processes and to all variable resources when at least one factor of production remains constant. The relationship between the amount of resources used and the volume of production achieved in physical terms represents an important constraint on the firm's activities, the analysis of which, therefore, should play an important role in management. However, most business decisions are made based not on natural but monetary indicators. This implies the need to combine production data obtained from an analysis of the law of diminishing returns with data on resource prices. This approach allows us to determine the dynamics of total production costs various volumes products and costs per unit.

2. Short-term period of validity of the law

Within the short-term period, costs can also be legitimately divided into fixed and variable. Constants are those whose value does not depend on changes in production volume. They are associated with the very existence of the company's production equipment and the obligations it assumes. These are, as a rule, the costs of maintaining factory buildings, machinery and equipment, rental payments, insurance premiums, as well as the cost of paying salaries to management personnel and, possibly, a minimum number of employees. Fixed costs are obviously obligatory and persist even if the firm produces nothing at all.

Variables are those costs, the value of which depends on changes in production volume (these are the costs of raw materials, auxiliary materials, components, fuel, electricity, transport services And most labor resources). To decide how much to produce, company managers need to know how much production will increase. variable costs with increasing production volume.

An increase in marginal product up to a certain point will cause an increasingly smaller increase in variable resources for the production of each subsequent unit of output. Consequently, the amount of variable costs will increase at a slower rate than the volume of production. But since the fall of marginal productivity, everything large quantity additional variable resources will be used to produce each additional unit of output. Accordingly, the amount of variable costs will increase at a rate exceeding the growth rate of production volume.
Total (gross) costs are the sum of fixed and variable costs for each given volume of production.

Average fixed costs(AFC) represent the fixed cost per unit of output.

Since fixed costs do not change with production volume, average fixed costs decrease as output increases.

Average variable costs first fall, reach a minimum, and then begin to increase.

When returns are in the increasing stage, fewer and fewer additional variable inputs are required to produce each additional unit of output. Consequently, variable costs per unit are reduced. At the stage of diminishing returns, the picture is the opposite, and variable costs per unit of output increase. Average total costs(ATC) represent gross costs per unit. They can be calculated by dividing gross costs by the number of products produced.

3. Land as a factor of production

The law of diminishing returns applies to land only because, unlike other factors of production, it has one important property- limitations. The land can be cultivated more intensively, but the area of ​​cultivated land cannot be increased indefinitely, since the supply of land suitable for cultivation is constant.

Does the law of diminishing returns apply to other natural goods grouped under the term “land”? Let's take for example a mine where coal is mined. Indeed, over time, people are faced with increasing problems as they try to extract more minerals. All other things being equal, the continuous application of labor and capital to the mine will lead to a decrease in coal production. However, when we talk about the use of land in agriculture, then the output in the form of agricultural products represents renewable income, and the coal mined from the mine is the extraction of accumulated treasures from it. After all, coal is part of the mine itself. Let's imagine that one person can pump water out of a tank in thirty days, but thirty people will do this work in a day, and when the tank is empty, no one and nothing will help pump the water out of it. Also, there is simply nothing to take from an empty mine. Therefore, the law of diminishing returns does not apply to mining.

One of the important characteristics of land is its limited area. Man is not able to change its size at will; it is impossible to “produce” the earth. The use of a certain piece of land represents the original condition of everything that a person can do.

It must be remembered that the term “land” is used in a broad sense. It covers all resources that are given by nature in a certain volume and over the supply of which man has no control, be it the earth itself, water resources or minerals.

Certain areas of the earth's surface contribute to certain human production activities: for example, seas and rivers are used for fishing; areas rich in minerals are necessary for the mining industry; some part of the land is used for construction (although in this case the choice is made not by nature, but by man). But, nevertheless, when talking about land, we first of all mean its use in agriculture.

The properties of the earth can be divided into those initially given, that is, natural and artificially created. A person can influence the fertility of the earth in a certain way, but such influence is not unlimited. Sooner or later the time will come when the additional return obtained from the additional application of labor and capital to the land will be so reduced that it will no longer reward a person for their application. We come to an important law concerning land - the law of diminishing returns (meaning returns in quantitative terms), or diminishing returns.

Conclusion

The law of diminishing returns can be formulated as follows: “Each increment of capital and labor invested in cultivating the land generates, in general, a proportionately smaller increase in the amount of product obtained, unless the specified increment coincides with an improvement in agricultural technology.”

It is quite natural that on insufficiently cultivated land this tendency is not noticeable at first; it begins to act only after it has been achieved. maximum level recoil. Diminishing returns can be temporarily halted by improvements in agricultural technology. But if the demand for the produce of the land increases without limit, the tendency towards diminishing returns will become irresistible.

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A firm's change in production volume and costs depends on the ability to change the quantity and structure of products used for manufacturing economic resources, which are largely determined by the type of market period.

First of all, let's look at the patterns of changes in volume and various types production costs in short term period.

Changes in production volume and costs in the short term are associated with the law of diminishing returns. It operates only in the short term, when homogeneous units of a certain variable resource are added to any constant resource. Law of Diminishing Returns means that, starting from a certain point, the sequential addition of identical units of a variable resource (for example, labor) to a constant one (for example, capital or land) gives a decreasing marginal product per each additional unit of a variable resource, i.e. its marginal productivity decreases. Marginal product and marginal productivity are denoted and defined in the same way. Marginal product(MP - marginal product) is the additional product produced by each additional unit of a variable resource. Respectively, ultimate performance(MP - marginal productivity) is the incremental productivity of each additional unit of a variable resource. Marginal product (marginal productivity) is defined as the change in gross product in physical terms (total output) associated with the attraction of an additional unit of a variable resource.

If labor is the variable resource, then MP can be determined as follows:

where MR is the marginal product (marginal productivity);

ΔTR (ΔQ) — change in gross product in physical terms (change in total production volume);

ΔL is the change in the variable labor resource.

When ΔL = 1, the formula takes the following form: MP = ΔTP = ΔQ.

It is necessary to explain the reasons for the operation of the law of diminishing returns in the short term. Let's imagine the law of diminishing returns based on the data presented in table. When compiling the table, it was assumed that the constant resource for a given company is real capital, i.e. equipment, and the variable resource is living labor.

Law of Diminishing Returns

The third column shows changes in the marginal product (marginal productivity) in the process of using additional units of labor with a constant amount of capital in the short term. When the first three workers are hired, the marginal product increases from 15 to 20 units. Starting from the fourth unit of labor, the law of diminishing returns applies: the marginal product decreases. At the same time, for the ninth worker it is zero. The marginal product of the tenth worker is negative.

The data in the fourth column shows the change in average product (average productivity). Average product(AP - average product) is the volume of production per unit of variable resource on average. Average performance(AP - average productivity) is the average productivity of a unit of variable resource: AP = Q/L. The average product also increases when using the first four workers, and then, starting from the fifth unit of labor, it decreases.

Let us graphically represent the relationship between marginal, average and gross product.

The graphs show that gross product (total output) increases as long as marginal product is positive. When the marginal product is equal to 0, it is the maximum value. When marginal product becomes negative, the firm's gross product begins to decrease.

There is also a certain mathematical relationship between marginal and average product (marginal and average productivity), which is shown in Fig. As long as the marginal product of each additional worker exceeds the average product that was produced before he was hired, the average product increases. As soon as the marginal product of an additional worker falls below the average product it was before he was hired, the average product begins to decrease. This relationship should be illustrated using table. and rice The established relationship also implies the equality of the marginal and average product (marginal and average productivity): MP = AP at the maximum value of the average product (average productivity). In Fig. this is shown by the point of intersection of the MR and AR graphs, corresponding to the maximum value of AR.

Having examined the effect of the law of diminishing returns and changes in the volume of output in the short term, we move on to the analysis of production costs.

Law of Diminishing Returns

The effect of the law of diminishing returns was not taken into account in the pre-perestroika period of the functioning of the domestic economy. One of the main directions for increasing production efficiency was its concentration. The construction of large enterprises was a characteristic feature of all sectors of the economy.

The law of diminishing returns, or the law of diminishing marginal product, or the law of varying proportions, are all different names for the same law. Let's look at two definitions that explain the law of diminishing returns from different angles.

Marginal - close to the limit, located on the edge. In Russian, the most precise meaning is expressed by the words “additional”, “additional”.

Law of Diminishing Returns reads: As the use of any factor of production increases (with other factors of production fixed), a point is eventually reached at which additional use of that factor leads to a decrease in output.

Beginning at a certain point, the successive addition of units of a variable resource (for example, labor) to a constant, fixed resource (for example, capital or land) produces a decreasing incremental, or marginal, product per each subsequent unit of the variable resource. In other words, if the number of employees serving a given area of ​​activity increases, then the growth in production volume will occur after a certain point more and more slowly, as the number of workers in production increases.

In fact, if in your garden plot you, without cultivating the land, get a harvest equal to 8 buckets (80 kg) from one hundred square meters, then after one treatment of the land (weeding, watering, hilling) the yield will be 94 kg, after two treatments - 102 kg, after three - 105 kg. It is clear that the return of each subsequent processing with equal total costs of living and material labor will decrease.

This law applies not only to agricultural production, but also to other industries. What happens if the number of workers increases to, say, 20 people?

The additional, or marginal, product of additional workers will be reduced. At the same time, we assume that each additional worker is equivalent to the main worker both in terms of individual productivity and in terms of qualifications. The marginal product begins to decrease because larger number workers are employed with the same amount of capital funds.

Let's look at an example.

Table 1. Illustration of the law of diminishing returns: changes in production volumes depending on changes in the value of variable resources

Table 1 provides a visual numerical illustration of the law of diminishing returns. Shows the total amount of output that can be obtained by combining a given amount of labor resources with constant resources (the value of the latter is assumed to be constant). The next column shows marginal productivity - showing the change in output associated with the investment of each additional unit labor resource. Please note that in the absence of labor inputs, production volume is zero (an enterprise without people cannot produce products). The appearance of the first three workers is accompanied by increasing returns, since their marginal products are 8, 12 and 16 units, respectively. However, in the future, starting from the fourth worker, the marginal product (increase in total production) successively decreases, so that for the ninth worker it is reduced to zero, and for the tenth - twelfth worker it has a negative value. Average productivity (or output per worker, also called labor productivity) is shown in the right column.

For clarity, we present a graphical representation of the obtained dependence. The second figure clearly shows three phases: 1) total production increases at an accelerating pace; 2) the rate of elevation slows down; 3) returns are decreasing.

Rice. 1. The law of diminishing returns.

Rice. 2. Marginal and average productivity

(1 - average productivity, 2 - maximum productivity).