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the law of diminishing returns

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The law of diminishing returns is analyzed.

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Sometimes also referred to as the law of variable proportions, the law of diminishing returns is really a generalization economists make about the nature of technology when it is possible to combine the same factors of production in a number of different proportions to make the same product. The law states:

When increasing amounts of one factor of production are employed in production along with a fixed amount of some other production factor, after some point, the resulting increases in output of product become smaller and smaller.

The law of diminishing returns is significant because it is part of the basis for economists' expectations that a firm's short-run marginal cost curves will slope upward as the number of units of output increases. And this in turn is an important part of the basis for the law of supply's prediction that the number of units of product that a profit-maximizing firm will wish to sell increases as the price obtainable for that product ...

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