320 AGRICULTURAL ECONOMICS 



applications of labor and capital may continue to produce larger crops, 

 the crops will not be so large in proportion to the labor and capital. 



In growing such a specific crop as corn, for example, a single day's 

 labor of a man and team with the appropriate tools, if spread over 

 a whole ten-acre field, would be thrown away because it would produce 

 no crop at all. Five days on the same field might produce something 

 of a crop, but it would be a poor one. Ten days would certainly 

 produce more than twice as large a crop as five, and twenty days' 

 labor might possibly produce more than twice as much as ten. 

 But forty days' labor would hardly produce twice as much as twenty, 

 eighty would certainly not produce four times as much, and two 

 hundred days' labor would fall far short of producing ten times as 

 much. If these assumptions are true of the particular field in ques- 

 tion, it could be said to yield increasing returns up to the point 

 where twenty days' labor were expended. Beyond that point it 

 would be said to yield diminishing returns. 



In discussions of this subject, confusion has sometimes resulted 

 from a failure to distinguish the law of diminishing returns from a 

 somewhat similar law relating to the comparative economy of large- 

 and small-scale production. It is, for example, sometimes stated that 

 manufacturing is carried on under the law of increasing returns, 

 because a large factory can be run more economically, and turn out 

 its products at a lower cost, than can a small one. But this is quite 

 different from saying that a large factory can be run more economically 

 than a small one on a given piece of land, or that it would not be 

 necessary to use more land in connection with a large factory than 

 with a small one of the same kind. 



Each business or industrial unit, such as a farm, a store, or a 

 factory, is a combination, under one management, of various factors 

 of production, which are usually included under the three heads 

 land, labor, and capital. Among the various questions which the 

 manager of such a unit has to determine are the two following: 

 (i) What is the best proportion in which to combine the various 

 factors ? (2) What is the best size for the whole business unit ? The 

 law of diminishing returns has to do only with the former of these 

 questions. That is to say, it relates to the varying productivity of an 

 industrial unit when the factors are combined in varying proportions. 

 On the other hand, the law which relates to the comparative economy 

 of large- and small-scale production has to do primarily with the size 

 of the unit rather than the proportion in which the factors are com- 

 bined. 



