138 AGRICULTURAL ECONOMICS 



and the third are indispensable; and, in case a farmer can 

 manage a fixed number of these composite units, made up of 

 capital-goods and laborers, when employed in the production 

 of a given crop without reference to the area on which they are 

 employed, the highest average return per unit is the thing which 

 he should seek, for with a fixed cost per composite unit this will 

 enable him to secure the largest net profit per composite unit, 

 consistent with the proper intensity of management, and hence 

 will enable him to secure the maximum total net profit for his 

 exertion. 



In the illustration (Fig. 7) the average product per unit 

 curve AP is represented as increasing rapidly until the sixth 

 unit has been applied and then less rapidly until a point is 

 reached where the return per increment is just equal to the 

 average. At this point the average return per unit reaches the 

 maximum, and the application of another increment would 

 reduce the average product per unit employed. The thousand 

 composite units are used in the most economical manner when 

 the acreage is so limited that the number of units applied to 

 each acre is just sufficient to yield the maximum average return 

 per unit. For example, the highest average return would be 

 gained by the application of X units in the case before us in 

 Fig. 7, where the location of X is determined by the fact that 

 the rectangle A VX'X is drawn in such a manner that its area 

 equals the area AI'X'X, which represents the total product 

 of X composite units of the two factors laborers and capital- 

 goods. That part of the rectangle lying between the line HE' 

 and the line //', for example, represents the average return 

 per unit. Had the applications stopped at 7, after the appli- 

 cation of but six units, the total product would be represented 

 by the area ATI, or the rectangle AW 'NI, and the average 

 return per unit would have been less. Likewise had the appli- 

 cations been increased to nine units, the average return per 

 unit would have fallen. Hence a curve of increasing and dimin- 

 ishing average returns may be drawn, based upon the increasing 

 and diminishing returns of the successive composite units 

 of labor and capital-goods. This curve of averages is repre- 



