Law of diminishing returns
Law of diminishing returns, also know as the law of non-proportional returns or law of returns, states that when an increasing quantity of a factor of production (or group of factors) is used in conjunction with a fixed quantity of complementary factors, eventually a point will be reached where the additional output produced will be less than proportionate to the increased quantities of the input used. This law applies to a given point in time, or in other words assumes a static production process. Over time changes in technology could cause the point of diminishing returns to be pushed back.
A classic example of the law of diminishing returns is increasing the amount of labor used to farm a given plot of land. If the number of laborers used are continually doubled eventually a point will be reached where the doubling of labor will result in less then a doubling of the return from the land.
- ↑ 1.0 1.1 Reisman, George. "Capitalism: A Treatise on Economics", 1998, page 67.