# Law of Diminishing Returns

The Law of Diminishing Returns is a core economic principle stating that when you increase one factor of production (an "input"), while keeping all other inputs fixed, the marginal increase in output will eventually begin to decrease. This law is a fundamental concept in both microeconomics and business management, as it helps businesses make decisions about resource allocation and production levels to maximize efficiency and profit.

In simpler terms, adding more of a single resource, like labour, to a fixed resource, like a factory or a piece of land, will initially lead to a significant boost in production. However, after a certain point, each additional unit of that variable input will add progressively less to the total output.

Here are a few key points to understand:

* The "Short Run" Concept: This law operates in the short run because it assumes that at least one factor of production (like capital or land) is fixed. In the long run, all factors can be adjusted.
* Marginal vs. Total Product: The law doesn't mean that total production will decrease. Instead, it means that the *rate* of increase will slow down. The marginal product (the output from each additional unit of input) declines, but the total product can still be rising. Eventually, if you continue to add more of the variable input, the marginal product can become negative, and total output will begin to fall.
* A Classic Example: A common example is a farm. A farmer with one acre of land might get a significant increase in crop yield by adding a second worker. A third worker might also help, but the increase in yield won't be as dramatic. Eventually, adding a tenth worker might be counterproductive, as they get in each other's way and have nothing productive to do on the limited land.

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