LAW OF DIMINISHING RETURNS
Diminishing returns is the decrease in marginal output of the production. This law refers to a point at which the profits or benefits gained is less than the amount of money invested.
Example:-
My uncle is a farmer. If he would introduce some chemicals to grow a crop of rice, than here input is chemical. If he won’t introduce any chemical(input), than let’s say returns would be 1000 units. If he would introduce chemical in 1st week, than he would get 1300 units, means 300 marginal units. If he would introduce same amount of chemical in 2nd week which he intoduced in the 1st week, than he would get 1500 units, means 200 marginal units extra than the previous one. If he would introduce same amount of chemical in the 3rd week also, than he would get 1600 units, means 100 marginal units.
Here, in the above example, every week we were introducing the same amount of chemical, and the total returns was increasing in diminishing rate week by week.
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