Modern society pricing is largely based on supply and demand, and that means pricing can change by the minute. One of the things that make this economic principle tough to apply in modern times is the fact that very seldom is there a situation where only one variable changes in production while the rest stay constant. The Problem with Using Diminishing Returns in an Economic Model The owner might have gotten the apples picked faster, but there was no benefit from doing that, so the land owner experienced a вЂdiminishing returnвЂ™ on their production of $100. Since everything else stayed the same, the landowners profit decreased $100 to $1400. If one more picker is added to the equation, those 11 workers will cost the landowner $1100 to pick all the apples. The economic variable that will change in our scenario is the number of pickers.

That will give the landowner a profit of $150 on each worker for a total of $1500 on the yearвЂ™s crop. Say each worker cost $100 a month and they picked 1000 apples that were sold for 25 cents each. The land owner added workers until he figured out it took 10 workers to have the orchard completely picked in the required one monthвЂ™s time. For the example purposes, the number of apples that can be picked in total and the price the apples are sold for will remain constant. Of course in order for the orchard to produce a profit for the owner, the trees must produce apples and then these must be picked and then sold to a buyer. LetвЂ™s take an apple orchard as the type of business we are looking at. Agricultural examples are typically used to explain diminishing returns because it is easy to understand them when only one variable is being changed. Here is an example of how the principle of diminishing returns works. This is an economic principle that simply states that if all factors of production remain constant except for one, the one variable factor that does change will eventually get to a point where when one more unit of that variable is added it will actually start lessening the returns on the amount of the product produced. What is the Principle of Diminishing Returns? LetвЂ™s take a look at the principle of diminishing returns or the вЂlaw of diminishing returnsвЂ™ as it is sometimes also known by. One of these principles of вЂdiminishing returnsвЂ™ has been stretched a little but still remains true to this day. They have stood the test of time to various degrees, but overall they still hold true even when modern production techniques and skills are factored into them.

Many economic principles have been around for years.

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