The principle that, at some point, adding more of a variable input to a fixed input will cause the marginal product of the variable input to decline.

• A. Law of increasing returns
• B. Law of diminishing returns
• C. Law of constant returns
• D. Law of variable returns

Answer: (B)

Diminishing marginal returns occur when, after a point, adding more of a variable input to a fixed input yields a smaller increase in output for each additional unit. With fixed resources like land or machinery, initial additions of labor can boost production as tasks are better organized and fixed inputs are used more efficiently. But as you keep adding the variable input, the fixed resources become crowded, there’s less of them per unit of input, and coordination becomes tougher, so each extra unit of input contributes less to total output. That declining extra contribution is why the marginal product falls after a certain point, which is exactly what this principle describes.