Page 75 - Theoretical and Practical Interpretation of Investment Attractiveness

Figure 2.2.1. Factors Driving Economic Innovation Processes.

The law of diminishing returns to labor productivity is short-term and specific to the
period when there is a minimal change in a single factor of production. In the long term, if all
factors of production increase in a certain combination, the volume of production also
increases.
The law of diminishing returns to labor productivity (LRTP) indicates the decrease in
productivity of a fixed factor. The law of diminishing returns to labor productivity is based
on a specific production technology (2.2.2-figure). LRTP is relative rather than absolute and
is applied to a specific production technology. With the passage of time and the improvement
of technology, the production capacity of the product increases.
For example, if the initial technology maximizes the use of variable labor resources
(2.2.2-figure), transitioning to a new, improved 2-technology increases the volume of labor
input, and further transitioning to an improved 3-technology increases labor input in
proportion to the amount: It should be noted that the technological advancement does not
invalidate the law of diminishing returns to labor productivity; this law maintains its validity
in any production technology, preserving its strength.
Points A, B, and C in the production curves of the 1st, 2nd, and 3rd technologies in the
figure indicate that at each subsequent point of production after these points, each additional
factor (labor input) used in production reduces the volume of production 104 .This shows that,
according to the classical school representatives, by using factors in various proportions, the
emergence of an innovation process can be explained, but this approach and explanation are
not sufficient to reveal the essence of innovation.
Here, only the possibility of using factors in various proportions in the production
curves is considered (2.2.1 figure), which increases the volume of production, or without

104 Salimov B.T., Muxitdinova U.S., Mustafakulov Sh.I. Microeconomics: Textbook. - T .: TDIU, 2006. 230 p.
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