The law of equimarginal efficiency deals with the distribution of the limited amount of resources among different enterprises. The law states that „profits are maximized by using a resource in such a way that the marginal returns of that resource are equal in all cases” For most goods, we expect marginal returns to decline. This means that the marginal utility of the fifth good tends to be less than the marginal utility of the first good. The more we buy, the less the overall advantage increases. Table: Equimarginal yield expenses Cultivator has limited capital and its main objective is to maximize the net profit. He has several alternatives to invest this amount. He should spend the amount in such a way as to obtain maximum profit. This can be achieved through the principle of equimarginal returns. This principle can be illustrated by the following example. Suppose the farmer has 50,000 rupees to invest.

Its location is favorable to the takeover of arable farms, dairies and poultry farms. The table shows that if the total amount was invested in a business, the net profit of the crop farm, dairy enterprise and poultry enterprise will be received 26,000 rupees, 22,000 rupees and 28,000 rupees respectively. However, if the same amount is spent according to the equimarginal return principle, the total net profit will be shown below in the table below: Marginal return on invested capital for three companies Thus, the total returns and net profits of Rs 4200 and Rs 1200 respectively are higher than the returns and net profit of Rs 4025 and Rs 1025 respectively. Therefore, in order to maximize returns, resource allocation should be based on additional yields rather than average returns. Practical Use: This law guides the farmer in planning his budget for the preparation of his crop plan. It also provides guidance for the introduction of diversified or specialized agriculture. It also makes it possible to determine the business relationship in a complementary or competitive manner. In other words, this law suggests that the limited resources available should be invested, taking into account the marginal (additional) returns we receive from this company and not our average returns. The following example illustrates this.

A farmer has 3000 rupees and wants to grow sugar cane, wheat and cotton suitable for his agricultural situation. How much money should be spent on each business to get the highest profit? Table: Addition to income from marginal (added) amount of Rs 500 From the table above, it can be seen that the farmer makes a total net profit of Rs 48,000, which is more than the profit of a single enterprise. Thus, for maximum net profit, the producer should invest Rs 20,000 in crops, Rs 20,000 in poultry enterprises and Rs. 10,000 in dairies. From the table above, it can be seen that the marginal returns of the three companies are the same, i.e. Rs.1900. Thus, it can be argued that the amount should be invested in such a way as to obtain marginal returns on all alternatives. Opportunity cost: In agriculture, resources are limited and have other uses. When resources are used, opportunities for other alternatives are lost.

Opportunity cost refers to the value of the next best alternative that is abandoned. It can be explained using an example given in the table. The top 1,000 were invested in poultry and lost Rs 20,000 from plant farms as the best alternative to the top 10,000. Another example, Cultivator gets Rs.300 by spending Rs.100 to feed poultry feed. If he spent the same Rs 100 to feed dairy cows with concentrates, he receives an additional Rs 200. Now the farmer forgoes Rs.200 and spends Rs.1000 on poultry feed and receives Rs.300. Therefore, the opportunity cost of feeding poultry and receiving Rs 300 or expenditure of Rs 100 for poultry is Rs 200. The equimarginal principle states that consumers choose a combination of goods to maximize their overall utility. This will happen if the above table shows that the investment of Rs.3000 gives maximum average returns of sugarcane enterprises. But if a farmer invests his amount of Rs. 3000 taking into account the additional yields, he can earn the profit as shown below.

The equimarginal principle can also be applied to time management issues such as studying for exams. Let`s say you have 3 exams tomorrow and you only have 9 hours to study today (a common case for students piling up during exams!). The subjects covered are economics, English and mathematics. Your goal is to maximize the average of your grades in these 3 subjects with your limited study time. In other words, how should you allocate your 6 hours of study time so that the marginal mark (or extra grade) of the last hour of study in one subject is exactly equal to the marginal mark of the last hour of study in one of the other subjects? If you answer: „I will distribute my lime equally between the 3 compartments”, this may not really be the most practical (or, if you prefer, strategic) thing.