Define Law of Diminishing Returns and its application to Agriculture and Forestry.

This is a very important law of production. This is called the universal law of production because it applies in all production sectors. 

After the firm attains the optimum level of production, the marginal product starts falling with each additional unit of a variable factor. In industry, the application of the law takes quite some time because the optimum level of production is not attained quickly, whereas in the sector of agriculture it applies in a short run as the optimum production level is obtained soon.

Professor Alfred Marshall defines this law with reference to agriculture as:

“With each additional unit of labor and capital applied to a given piece of land total product increases at a diminishing rate (i.e .marginal product falls), provided there is no change in agriculture technology”.

The modern economists are of the opinion that the law of diminishing return is not exclusively confined to the agriculture sector, but it has a much wider application. They are of the view that wherever the supply of any essential factor of production cannot be increased or substituted proportionately with the other sectors, the return per unit of variable factor begins to decline.  The law applies in all sector of the economy sooner or later. But in the field of agriculture and forestry, this law applies more quickly because:

i.                 The quantity of land is fixed and there is no substitute of land. Therefore as the units, labour of capital are increases on a given piece of land the law of diminishing return apply.

ii.               The land is exposed to natural calamities, floods, pests and diseases and therefore marginal products falls.

iii.       Agriculture products is spread over a large area therefore its become difficult to look after the output.

iv.     Land losses its fertility after some time. The marginal products is decreases.

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