Home  Diminishing returns

Department of Economics

Activities 1 2 3

The law of diminishing returns

The law of diminishing returns states that as more of a variable input is combined with one or more fixed inputs in a production process, the marginal product of the variable input will eventually decline.   The decline in the marginal product of the variable input is followed by a decrease in the average product and lastly by a decrease in the total product.

According to the short-run production function, diminishing returns take place in the range where total product increases at a decreasing rate. 

The marginal product (MP) of the variable input is the number of additional units of output produced by adding one  additional unit (the marginal unit) of the variable output.  It measures the contribution of an additional unit of the variable input to total production.  (more)

According to the law of diminishing returns the contribution of the variable input to total production will eventually decrease as more and more of the variable input is used. 

The average product (AP) of the variable input is the average number of units of output produced per unit of the variable input. (more)