State the “Law of Diminishing Return” with Example

The law of diminishing return: The law of diminishing return state that, “we will get less and less extra output when we add additional unit of input, holding other input constant.” The marginal product of each unit of input will decline as the amount of 1 output increases.

The law of diminishing return express a very basic relationship in between input and output. As more of input such as labor is added to a fixed amount of land, machinery and other input, the labor has less and less of the other factors to work with. The land gets more crowded, the machinery gets very busy and the marginal productivity of labor is decreases.

The law of diminishing return can be fleshed out by putting ourselves in the boots of a farmer performing an agricultural experiment illustrated by table-1.

Unit of Labour	Total product	Marginal product	Average product
0	0	0	0
1	2000	2000	2000
2	3000	1000	1500
3	3500	500	1167
4	3800	300	950
5	4000	200	800

Given a fixed amount of land and other input, assume that we use no labor inputs at all with zero labor input there is no corn output. Hence table-1 records zero product when labor is zero.

Now add 1 unit of labor to the same fixed amount of land. We observe that 2000 bushels of corn are produced. In the next stage we continue to hold other inputs fixed and go from 1 unit of labor to 2 units of labor. The second unit of labor adds only 1000 bushels of additional output which is less than what the first unit of labor added. The third unit of labor has an even lower marginal product than does the second and the fourth unit adds yet a bit less. Thus the table-1 illustrates the law of diminishing return.

Figure-1 illustrates the law of diminishing returns for labor, holding land and other input constant. Here we see that the marginal product curve declines as labor input increase, which is the precise meaning of diminishing returns. Figure-1(a) diminishing dome shaped total product curve.