What is the law of diminishing returns?

The law of diminishing returns says that, if you keep increasing one factor in the production of goods (such as your workforce) while keeping all other factors the same, you’ll reach a point beyond which additional increases will result in a progressive decline in output. In other words, there’s a

What is the law of diminishing marginal returns?

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.

Why is diminishing returns important?

Understanding the concept of diminishing returns allows firms to optimise resource allocation, improve productivity, and avoid inefficiencies. This law states that when a variable factor of production is added to some fixed inputs, the marginal product eventually diminishes.