Diminishing returns to a factor is also
known as Law of diminishing returns. It refers to a situation where total
output tends to increase at the diminishing rate when more of the variable
factor is added to the fixed factor(s) of the production.
Table
1. Diminishing Returns to a Factor.
|
Units of Labour
|
Units of Capital
|
Total Product
|
Marginal Product
|
|
1
|
1
|
5
|
5
|
|
2
|
1
|
8
|
3
|
|
3
|
1
|
10
|
2
|
|
4
|
1
|
11
|
1
|
|
5
|
1
|
11
|
0
|
|
6
|
1
|
10
|
-1
|
The above table shows the operation of
diminishing returns to a factor. As more and more units of labour are combined
with the fixed amount of capital, TP increases at the decreasing rate, or it
may even stop increasing or still further start diminishing. The MP is
diminishing and at last it becomes zero and then negative.
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