Explain the law of diminishing returns and discuss how the law is illustrated by a total product curve.

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pohnpei397 eNotes educator| Certified Educator

The law of diminishing marginal returns refers to a situation where a firm is adding variable inputs to a fixed input as it increases production.  In such a situation, the firm will eventually reach a point where each new unit of the variable input starts to result in a smaller increase in output.  At first, for example, the firm might hire 1 extra worker and get 100 extra units of production.  But when diminishing returns set in, it might hire 1 extra worker and only get 50 extra units of production.  The next extra worker it hired would give even fewer extra units of production.

If the variable input were on the horizontal axis of a graph and marginal output were on the vertical axis, you would see that the line on the graph would start to flatten out (become less steep) as diminishing returns set in.