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Question Answer CH 6

The farmer would experience diminishing returns in this situation. Diminishing returns refers to increasing inputs by one unit resulting in smaller increases in output. Here, as the farmer increases water from 2 to 3 units, rice production increases by 175 ears. But from 3 to 4 units, production only increases by 125 ears, showing diminishing returns. Decreasing returns to scale would mean total production decreases with increased inputs, which is not described. Constant returns implies proportional increases in inputs and outputs, which is also not depicted by the varying marginal returns shown in the example.

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30 views2 pages

Question Answer CH 6

The farmer would experience diminishing returns in this situation. Diminishing returns refers to increasing inputs by one unit resulting in smaller increases in output. Here, as the farmer increases water from 2 to 3 units, rice production increases by 175 ears. But from 3 to 4 units, production only increases by 125 ears, showing diminishing returns. Decreasing returns to scale would mean total production decreases with increased inputs, which is not described. Constant returns implies proportional increases in inputs and outputs, which is also not depicted by the varying marginal returns shown in the example.

Uploaded by

Bracu 2023
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Chapter Six

Q1. Suppose that a farmer who produces Boro rice uses land, labor, seed and irrigation water
as only inputs. Under what circumstances would you consider the farmer’s production
characterized by:

a) Diminishing returns.
b) Decreasing returns to scale.
c) Constant returns to scale.

Diminishing returns:

A farmer who produces Boro rice uses in addition to land, others factors include labor, seed and
irrigation water as only inputs. Assume the farmer has already decided how much seed and
labor he will be using this season. He is still deciding on how much water to use. As he increases
the amount of water, the output of corn will increase. It may also reach a point where the
output actually begins to decrease since too much water can become harmful.
The law of diminishing returns states that there will be a point where the additional output of
rice gained from one additional unit of water will be smaller than the additional output of rice
from the previous increase in water. This table shows the output of rice per unit of water:
Units of water Total Ears of Rice Marginal Ears of rice
1 100 100
2 250 150
3 425 175
4 550 125
5 600 50
6 625 -75
Output of rice per unit water
As the farmer increases from one to two units of water, total output increases from 100 to 250
ears of rice. Therefore the marginal, or additional, ears of rice gained from one more unit of
water is 150 (250 - 100). From two to three units of water, the total output increases from 250
to 425 ears of corn, a 175 marginal increase. At three units, the marginal output in ears of corn
is 175, but when the fourth unit is added, the marginal output drops to 125.
Decreasing returns to scale:

Again, this does not mean the total production starts to decrease. In fact, the total production
is still increasing, as shown in the total ears of rice column. Also note that at the sixth unit of
water, the farmer starts to experience negative returns, where the increase in water actually
decreases the total output and the marginal output becomes negative.

Constant returns to scale:

A constant returns to scale means that the proportionate increase in input is exactly equal to
the increase in output. The level of efficiency is maintained in third and fourth unit of water the
farmer starts to same output.

Units of water Total Ears of Rice Marginal Ears of rice


1 100 100
2 250 150
3 425 175
4 600 175
5 650 50
6 675 -75

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