How to calculate diminishing marginal returns?
Understand the Problem
The question is asking about the concept of diminishing marginal returns, which is an economic principle. The user seeks to understand the method or formula to calculate this phenomenon within production or resource allocation contexts.
Answer
Calculate where the second derivative of the production function changes from positive to negative.
The point of diminishing marginal returns can be calculated by finding the point where the second derivative of the production function with respect to the variable input changes from positive to negative.
Answer for screen readers
The point of diminishing marginal returns can be calculated by finding the point where the second derivative of the production function with respect to the variable input changes from positive to negative.
More Information
In production theory, diminishing marginal returns occurs when increasing one input, while keeping others constant, results in smaller incremental increases in output.
Tips
A common mistake is assuming the law of diminishing returns occurs immediately with the increase of inputs without considering that it comes after an initial increase in productivity.
Sources
- Point of Diminishing Returns - Definition, Calculate - corporatefinanceinstitute.com
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