Question

Why does diminishing returns occur? How does it work?

Answer 1

The law of diminishing returns states that, in any given production process, consecutively and successively growing one input while holding all other inputs fixed, in the end causes the added output obtained through another unit increase in the variable input to decrease, and in the end fall to zero and turn negative.

As others say that, this is not a “law” in the sense that that word is used in physics or mathematics. It’s rather an empirical observation, raised to a “law” because of its apparent universality.

It’s easy to quote examples of production processes where the law of diminishing returns works. For example, growing wheat requires seeds, suitable land, labor, capital in the form of various machines and implements, fertilizer, and possibly other chemical inputs as well. Consecutively growing the amount of seed used, while holding all other inputs fixed, will in the end reach to a point where extra or additional seeds produce little extra or additional output. The same thing applies to each of the other inputs as well, a bit more fertilizer increases yields, but excessive fertilizer in the end lessens those yields.