Obtaining Less of a Good Thing: Decreasing Yield

Decreasing yield is probably the most important economic factor to determine exactly what to produce about all the goods that it is possible to produce, given the limited amount of resources. This concept refers to the fact that for almost everything that people do, the amount of additional product that is obtained from each additional unit of a product diminishes the more it is used.

Decreasing yield is sometimes known as the beginning of the easy fruit to recollect. Imagine that you were sent to recollect oranges at a certain stage of the harvest. During the first hour you will recollect a good amount of oranges because you will reach for those that are at hands reach, those that are easier to get to. However, in the second hour, you will not be able to recollect as many oranges because you will have to stretch in a way that is more uncomfortable in order to get to the fruit that is higher up. During the third hour even less oranges will be collected because now it will be necessary to jump every time you want to reach an orange, since the ones that are left are even higher up. The following chart gives you somewhat of an idea of how this works:

Hours Worked

Oranges Recollected

Labor Cost Per Orange

1st

300

2 cents

2nd

200

3 cents

3rd

120

5 cents
Another way to see the effect of decreasing yield is to take note of the increasing costs of obtaining a product. If a worker is paid $6 per hour to collect oranges, the cost for 300 oranges in the first hour is of two cents per orange. The second hour only brings about 200 oranges, which costs three cents per orange, since the workers still need to get paid $6 an hour. During the third hour of work, only 120 oranges are recollected, so the labor cost per orange increases up to five cents.

Finally the effect of decreasing yield increases both the price that you will not keep assigning work resources to recollect oranges.

Almost all the processes of production exhibit decreasing yield and not only when it comes to work. The additional amounts for any product generally generate increases successively under the product, when all the other products remain constant.

Beginner Money Investing Producing the Right Goods in the Right Way Determining What Is Possible To Produce Classification of Production Used Resources Obtaining Less of a Good Thing: Decreasing Yield Assigning Resources Graphic Representation of Production Possibility