The law of diminishing returns states that when one aspect in the manufacture of a product is increased while holding the other factors constant, there will be a reduction in the magnitude of the output in the short run.
For instance, if a company ‘X’ increases one factor of production, say labor, a point will be arrived at whereby additional workers become less and less productive than a certain number of workers. This is accrued to increasing only factor of production disregarding the others. If for example the company increased all the factors of production, the level of production of the commodity would also have increased concurrently.
The law of diminishing returns is important to everyone and more so the company’s personnel and also to students. For example, a student may decide to spend all his free time reading ignoring other activities such as exercise and socializing. This behavior may reward the student positively in the exam but have his health and social interaction will be at threat (Jacques 67).
Natural monopoly is a monopoly that a firm experiences due to a low cost of production initiated by economies of scale. Economies of scale on the other hand means is a situation whereby the cost of manufacturing or supplying one extra unit of a commodity decreases as the capacity of output increases. In monopoly, we have only one company producing the product.
In many countries, natural monopoly exists whereby one company has the single access to certain resources, knowledge or the cost of setting up an identical company is very high, thus eliminating competition. The popular natural monopolies in many countries are railroads operators, electricity transmission and water suppliers.
Reference
Jacques, Anne Richard. The Law of Diminishing Returns. New York: Pantheon, 2005. Print.
Wilson, Peter S. The Natural Monopoly of Industries. Lincoln: U of Nebraska, 1997. Print.
