LAW OF DIMINISHING RETURNS

WHAT IS LAW OF DIMINISHING RETURNS?

Diminishing returns is the decrease in the marginal output of a production process. It states that in a production process as one input variable is increased there will be a point at which the marginal per unit output will start to decrease, holding all factors constant.

Reference- www.economicsdiscussion.net

we can understand by graph-

Stage 1- Total production and Average production increase; Marginal Production is first increasing and then decreasing.

Stage 2- Total Production is increasing, Average production and Marginal production both decreases.

Stage 3- Total production is diminishing, Average production and Marginal production both decreases.