Economics Assignment

Name: Mohammed Hasnain Merchant

Submitted to: Vishal Shukla

Assessment: Write a note on labor as an important input of

production. Citing an example in the context of labor as an
input, explain the Law of Diminishing Marginal Returns.
What is labor?

The amount of labor input is calculated as either the number of employees or the
number of hours they put in during a specific period, such a year. Most nations
gather information on the number of employees and can calculate labor
productivity as output per employee.

Any form of physical or mental effort is referred to as labor. Labor is defined in

economics as the efforts made to generate whatever goods or services. It
encompasses all types of human labor, including those performed for financial
gain and involving physical, mental, or intellectual effort. Let's examine the
characteristics of labor as a production factor.

Characteristics of Labor as a Factor of Production

1] Nature of perishability

The nature of labor is perishable. Simply said, this indicates that there is a
storage limit, meaning that labor cannot be stored. A worker forfeits all his
labor for a shift if he or she does not show up to work. It cannot be kept and
used the next day. That labor is irretrievably lost. A worker cannot save their
work to utilize later. Therefore, we might conclude that labor is a very
perishable input of production.

2] Labor and Laborer cannot be separated

This implies that the worker must be present. The worker must be physically
present at the location of the production of the goods or services to sell his
services. He and his labor power are inseparable. A welder must therefore be
present at the work site; we cannot expect him to work from home.

3] Efforts of human

Compared to other production factors, labor is distinctive. Unlike the others, it

is directly tied to human labor. So, when it comes to labor, there are a few
unique considerations we must make. Fair treatment of employees, enough rest
periods, a good working atmosphere, idle time, etc. are a few examples of these
elements.

4] Labor poses the quality of Heterogeneousness

We cannot anticipate uniformity in labor. Because each worker is different

from the others, so will his labor force. The abilities, working conditions,
rewards, and other innate characteristics of the laborer will all affect the quality
and efficiency of the labor.

5] Labor lacks Bargaining Power

As a factor of production, labor has very little negotiating power with the client.
It has no set or reserve pricing, cannot be stored, and is not very transportable.
Therefore, in general, workers are compelled to accept whatever compensation
the employer provides. The bargaining power of the workers is extremely weak
as compared to that of the employer.

Another issue is that workers have no alternative resources to fall back on.
Typically, they are uneducated and destitute. And their sole source of money is
from this labor employment. Therefore, they take the pay that the employer
gives them.

6] Immobility

Because workers can move to the place of employment, labor is a movable

factor of production. But it is difficult to relocate workers from one location to
another due to numerous obstacles. Therefore, we might conclude that labor is
less mobile than some other production elements, such as capital.

7] Labor supply is relatively Inelastic

The market's availability of labor is inelastic at any one time. It cannot be

immediately raised to meet demand. Therefore, if there is a scarcity of trained
workers in India, it will take more than a day, a week, or even a year to fill the
gap.

For a brief time, we might be able to import some workers. However, because
we are unable to instantly increase or decrease the labor supply, it is typically
very inelastic.

The Law of Diminishing Marginal Returns

An economic theory known as the rule of declining marginal returns states

that once an optimal level of capacity is reached, adding more factors of
production will only lead to smaller improvements in output.
For instance, a factory hires workers to produce its goods, and eventually the
business performs at its best. If you increase the number of employees
beyond this point, operations will become less efficient even if all other
production factors remain constant.

The idea of declining marginal utility is connected to the law of diminishing

returns. Economies of scale can be used to contrast it.

KEY TAKEAWAYS

According to the law of declining marginal returns, increasing the number of

production factors leads to lesser increases in output.

The addition of any more of a production element after a certain level of

capacity utilization would unavoidably result in lower per-unit incremental
returns.

For instance, if a factory employs workers to produce its goods, the business
will eventually operate at its most efficient level; keeping all other production
factors constant, adding more workers after this point will result in less
effective operations.