The notion of diminishing returns applies to all inputs to the production process. For example, one of the inputs in the production of corn is nitrogen fertilizer. Suppose a farmer has a fixed amount of land (an acre) and must decide how much fertilizer to apply. The first 50-pound bag of fertilizer will increase the crop yield by a relatively large amount, but the second bag is likely to increase the yield by a smaller amount, and the third bag is likely to have an even smaller effect. Because the farmer is changing just one of the inputs, the output will increase, but at a decreasing rate. Eventually, additional fertilizer will actually decrease output as the other nutrients in the soil are overwhelmed by the fertilizer.
Table shows the relationship between the amount of fertilizer and the corn output. The first 50-pound bag of fertilizer increases the crop yield from 85 to 120 bushels per acre, a gain of 35 bushels. The next bag of fertilizer increases the yield by only 15 bushels (from 120 to 135), followed by a gain of 9 bushels (from 135 to 144) and then a gain of only 3 bushels (from 144 to 147). The farmer experienced diminishing returns because the other inputs to the production process are fixed hour to 1,000. Xena was surprised when output increased to only 800 pages per hour. If she had known about the principle of diminishing returns, she would not have been surprised.
FERTILIZER AND CORN YIELD
Bags of Nitrogen Fertilizer Bushels of Corn per Acre
0 ................ 85
1 ................ 120
2 ................ 135
3 ................ 144
4 ................ 147