What is the law of diminishing returns?
The law of diminishing marginal returns states that in any production process, a point will be reached where adding one more production unit while keeping the others constant will cause the overall output to decrease. It’s also called “the law of increasing costs” because adding one more production unit diminishes the marginal returns and the average cost of production inevitably increases.
It’s typically valid on a short-term basis because over longer periods it is virtually inevitable that even fixed factors of production will become variable.
