# THE LAW OF DIMINSHING RETURNS

This law states that: “If a given quantity of fixed factor (e.g. land) is combined with increasing quantities of variable factors, output will increase to a certain point, after which successive addition of the variable factors will result to a lesser output per unit of the variable factors.

## CONCEPT OF THE LAW OF DIMINISHING RETURNS

FIXED FACTORS: Factors whose supply cannot be varied or increased in the short-run

VARIABLE FACTORS: Factors whose supply can be changed or increased in the short-run.

SHORT-RUN: The period of time over which some factors cannot be varied or increased.

LONG-RUN: The period long enough for the supply of factors to be varied.

A PRODUCT: Utility (goods or services) created by the combination of factors of production.

TOTAL PRODUCT: Which is the total amount of goods produced by all the factors employed over a period of time?

AVERAGE PRODUCT: The total product per unit of the variable factor i.e. total product divided by the variable factor.

MARGINAL PRODUCT: Additional product obtained from the addition of one more unit of the variable factor. It shows the rate of change in the total product as one factor is varied.

not allowed!