What is the law of declining revenues?
The Revenue Reducing Act is an important concept in economics describing what happens if one input factor in production increases while others are maintained the same. Initially, production increases in response to increased entry. However, as soon as the input increases, the production will start to equalize and the ineffectiveness will be achieved. In extreme cases, production may actually decrease. This concept plays an important role in deciding on business practices and planned business activities. The return would be bigger, but it wouldn't be twice as big; The seed unit would be less output than it was before. If the farmer decided to triple the seed, so much overfill could be created that tcel production could fall because the plants could not prosper.
When people balance inputs, they want to hit a point where they get a maximum return on the entry unit. Increasing inputs over rThe number of this point increases costs and reduces efficiency. The Reduction Act can be used to design outputs by changing the number of people in the workforce or by adjusting other input factors, such as the size of the factory or its operating hours. Finally, a point where additional costs do not provide any additional advantage, or not enough benefits to justify the costs that were carried out by the Reduction Act.
This concept plays a role in everything from the development of business plans to deciding on measures to reduce costs. People operating businesses work to create a balance between sufficiently high inputs to create maximum returns of WHILE do not walk overboard and end with costly inputs and relatively low returns; For example, the doubling of the workforce does not necessarily shorten the production time to half or double the speed of production.
The revenue law can also be seen how to decide on investment and allocation of funds. CommunityThey plan investments to avoid situations where money in the project will not return in the form of increased revenues. For long -term projects, financing decisions include a choice between continuing with financing and hoping that the project will perform and suspend a project that is clearly not successful.