law of Diminshing Returns

Diminishing Returns:-

The reduction of consumer satisfaction when the no. of inputs consumed increases after a certain point is known as diminishing returns.

Use of an input increases ( By keeping all other inputs constant ) till the saturation point and will eventually decrease with the addition of inputs.

Stage 1: Total product and average product increases, Marginal product is first increasing and then decreasing.
Stage 2: Total product is increasing, Both average product and marginal product decreasing.
Stage 3: Total product is diminishing, Average product is decreasing and marginal product is negative.

If all inputs into the production process are doubled, three things can happen:-

1. Output increases more than proportionately with an increase in the inputs- Increasing returns to scale.

2. Output increases in the same proportion as of the inputs- Constant returns to scale.

3. Output increases less than proportionately with an increase in the inputs- Decreasing returns to scale.