Final answer:
The law of diminishing returns states that as more resources are added, the marginal benefit decreases, leading to an accelerating increase in total variable cost. This principle, closely linked with concepts of productive and allocative efficiency, also relates to how countries can optimize production through comparative advantage and trade.
Step-by-step explanation:
The law of diminishing returns implies that eventually the total variable cost curve will begin to increase at an accelerating rate. This law holds that as additional increments of resources are devoted to a certain purpose, such as producing a good or service, the marginal benefit from those additional increments will decline. In practical terms, this can be observed when, for example, as more is spent on reducing crime, the initial reductions in crime are significant, but subsequent spending is less effective, leading to smaller reductions in crime. Applying more resources beyond a certain point results in higher costs for each additional unit of output, hence the total variable cost curve rises more steeply.
Moreover, the concept of productive efficiency indicated by the production possibilities frontier (PPF) illustrates that it is not feasible to increase the production of one good without decreasing the production of another when resources are fully utilized. Allocative efficiency is achieved when the mix of goods produced represents what society most desires. Factors like the curvature of the PPF, which varies by country, affect a nation's comparative advantage in producing certain goods more efficiently than others. Overall production can grow when countries specialize in goods for which they have a comparative advantage and engage in trade, according to the principle of comparative advantage.