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Law of Diminishing Returns

The Law of Diminishing Returns says that when some inputs are fixed in capacity in the short run, increasing the variable input working with the fixed inputs would first lead to increasing additional output per additional unit of variable input, but eventually decreasing additional output per additional unit of variable input after the optimal capacity of the fixed input has been exceeded.

Glossary:

  • diminishing returns
    See "law of diminishing returns."

Topics:

Costs and opportunities

Keywords

increasing returns, law of diminishing returns, marginal product, MP, production function, variable proportions