In reality, changing the configuration of capitals can turn the production process into something qualitatively different, and the returns can become incommensurable with additional input of capital—the more is different.
“The marginal value product is the monetary revenue that may be attributed, or “imputed,” to one service unit of the factor. In the ERE every isolable factor will earn its DMVP (discounted marginal value product), and this will be its price.” (pp. 456-457)
“As new supply is added, the marginal value product of a unit declines.” (p. 461)
“We must recall that there takes place the inexorable tendency in the market for the price of all units of any good to be uniform throughout its market—since factor units by definition are interchangeable, the value of one unit will be equal to the value of every other unit at any one time.” (p. 462)
“It should be evident that the array of MVPs as a whole is the determining factor, and the lowest-ranking process in terms of MVP will, through the medium of factor prices, transmit its message, so to speak, to the various firms, each of which will use the factor to such an extent that its DMVP will be brought into alignment with its price. It is the general DMVP schedule that determines the price of the supply of the factor, and then the particular DMVP schedules within each production process are brought into alignment so that the DMVPs of the factor equal its price. The nonspecific factor’s price will be set equal to its DMVP as determined by its general DMVP schedule: the full possible array of DMVPs, given various units of supply of the factor in the economy.” (p. 464)
Related:
- In reality, the law of diminishing marginal utility (DMU) doesn’t explain everything:
- 11-3.3 ‘The law of diminishing returns’ - We can recalibrate the curve so that we are always at the growing phase of the S-curve!
- 11-3.3a The law of returns—with the quantity of complementary factors held constant, there always exists some optimum amount of the varying factor
- 13-10 The law of the diminishing marginal utility of money applies only to the valuations of each individual person