Sunday, January 5, 2014

Why is it that if the law of diminishing marginal returns should not have held that the world's food should have been cultivated in a flower pot?

The law of diminishing returns does not say that we should grow all of the world’s food in a flower pot because that law has only to do with short-run situations where there is a fixed input. In the case of agriculture for the entire world, land is not really a fixed input.


The law of diminishing returns only applies when there is a fixed input.  In this case, the input would be land.  If...

The law of diminishing returns does not say that we should grow all of the world’s food in a flower pot because that law has only to do with short-run situations where there is a fixed input. In the case of agriculture for the entire world, land is not really a fixed input.


The law of diminishing returns only applies when there is a fixed input.  In this case, the input would be land.  If we started growing food in a flower pot, the law of diminishing returns would say that it would be a waste of time and money to, for example, hire a lot of workers, buy a combine, or buy a lot of fertilizer.  When you add those sorts of inputs to your fixed amount of land (the flower pot), you do not get much of a return.  The return that you get declines as you add more inputs.


However, in the real world of agriculture, this does not apply.  If we imagine that agriculture started in a flower pot, we would not have to confine agriculture to that pot.  Instead, we could start to add more land to our inputs.  This would mean that the law of diminishing returns would no longer apply because there would be no fixed input.

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