We may now notice in an elementary way the notions associated with intensive and extensive margins of land cultivation. When our farmer has reached the point of greatest efficiency (G in

Fig. 7), he has, provided the price for his product justifies further expenditures, two possible courses before him: he may apply additional units of labor and capital on the piece of land on which he has already expended 6 units; or he may apply these additional units to another piece of land. What is likely to be his action? If there is more land similar in every way to the piece he is already cultivating - which is unlikely - he will take up new land. If, on the other hand, the only land available is inferior to the piece which he is already cultivating, he will farm that piece more intensively; just how much more intensively will depend on the relative inferiority of the available land compared to the piece already under cultivation.

The problems connected with the law of diminishing returns, and with intensive and extensive margins of cultivation, have a practical significance in agriculture. If it were not for the operation of the law of diminishing returns, all the wheat which the world needs could be grown on a relatively small area - on a city lot, even in a common flowerpot. Every farmer knows that it is not profitable beyond a certain point in cultivation to hire more laborers, to buy more machinery, or to lay more tile; and the higher the wage level, the higher the prices of machinery and materials, and the greater the abundance of good land, the quicker he decides to cease adding capital and labor. Here is the explanation of the extensive character of American agriculture. American travelers in European countries, returning home enthusiastic over the intensive methods of cultivation they find there, often criticize the farmers here for what appear to them to be careless methods of agriculture. The fact is that the farmer himself has a fairly good idea of the location of the point of diminishing returns and the point of greatest efficiency, even though he may never have heard of these terms. In other words, he has found by experience and observation that intensive agriculture is not as profitable in the United States as in older countries, largely because of the high wage level and the abundance of unoccupied lands.

Value of Different Kinds of Farm Property in the United States: 1910.