Are there diminishing returns?
Returns eventually diminish because economists measure productivity with regard to additional units (marginal). Additional inputs significantly impact efficiency or returns more in the initial stages. The point in the process before returns begin to diminish is considered the optimal level.
What happens when diminishing returns occur?
Diminishing Marginal Returns occur when increasing one unit of production, whilst holding other factors constant – results in lower levels of output. In other words, production starts to become less efficient. This is known as Diminishing Returns because the output has started to decrease or diminish.
What is diminishing returns to a factor?
The law of diminishing marginal returns states that adding an additional factor of production results in smaller increases in output. After some optimal level of capacity utilization, the addition of any larger amounts of a factor of production will inevitably yield decreased per-unit incremental returns.
Are diminishing returns to a factor inevitable give reasons?
The law of diminishing returns applies because certain factors of production are kept fixed. If certain factor becomes fixed, the adjustment of factor of production will be disturbed and the production will not increase at increasing rates and thus law of diminishing returns will apply.
What were the causes of increasing diminishing returns to a factor?
The most important factor due to which this law applies to agriculture is the limited size of land. Production is sought to be increased by employing more and more units of variable factors. This will result in diminishing returns.
Why do you take on the additional risk?
While the definition of risk depends heavily on your temperament and investment philosophy, the underlying intuition makes a lot of sense: if you are not getting paid for it why take on the additional risk? While you may not necessarily agree with the rank order of the assets in the previous plot, it gets the point across.
What is the tradeoff between risk and return?
One of the core concepts of finance is that there is a tradeoff between risk and return — the more your money is at risk, the more you should be compensated for it (through higher expected returns).
Can a ROC curve reduce opportunity cost to zero?
Also note that in the example ROC Curve above, Random Forest is able to reduce opportunity cost to nearly zero while Naive Bayes is unable to do the same without incurring maximum cost. Generally, we will always have to accept at least a few missed opportunities.
