ABSTRACT
The well-being of a country will be affected by the size of its population in relation to its area and natural resources. A population may be too small or too large from the point of view of production, as will be clear if we consider a very small area. A solitary man cast on an uninhabited island might well find that he could produce very little, since his unaided efforts would have little effect in clearing the jungle, and so on. If a second man joined him their joint produce might easily be more than double that of the first man working alone. The same thing might be true of the advent of a third and fourth man. Production would be increased because with increased numbers more effective co-operation would be possible and in particular, more division of labour. But it might be possible that, though the addition of a fifth man would add to the total produce, yet that it would not do so proportionately; that is, the output per head might be less with five men than with four. It must be obvious that there is a point in the cultivation of any area when additional labour will not yield a proportionate return per unit of labour. Indeed, it would be possible to reach a point where additional labour would cause no addition even to the total return. If it were not for this fact it would be possible to grow food for London on an acre of ground by simply employing sufficient labour upon it. Every practical farmer and gardener knows that there is a point beyond which additional labour spent on tilling land will yield a less than proportionate return in produce. This fundamental fact is known to economists as “ the law of diminishing returns.” Beyond a certain point additional labour applied to a given area yields a
less than proportionate return, while up to that point it will yield a more than proportionate yield. The point at which the maximum yield per head is obtained is known as the point of maximum return.
