Diminishing returns
Diminishing returns describe how adding more of one input, holding others fixed, eventually yields smaller increases in output.
Add more of one ingredient while holding the rest fixed, and sooner or later each extra unit buys you less. That is the law of diminishing returns.
Diminishing returns describe how adding more of one input, while holding the others fixed, eventually yields smaller and smaller increases in output. Beyond some point, each additional unit of the variable input adds less than the unit before it.
The classic illustration
The standard example is a field. Add the first worker and output rises a lot; add a second and a third and output keeps rising, perhaps even faster as they specialise. But keep adding workers to the same fixed field and each new worker has less land to work with, until they are getting in one another's way and the extra output from one more hand is tiny. The land is fixed; only labour varies, and labour's marginal product falls.
Why it is about fixed factors
Diminishing returns depend on at least one input being fixed, which is what makes it a short-run idea. In the long run, all inputs can vary, more land can be acquired, and the constraint loosens. The principle is therefore not about scale in general but about the imbalance that arises when you pile more of one thing onto a fixed amount of another. It is distinct from diseconomies of scale, which concern enlarging everything at once.
Where it bites in practice
The principle is everywhere once seen. Adding engineers to a late project speeds it less and less, and may eventually slow it. Cramming more fertiliser onto the same soil lifts the yield by less each time. Pouring more advertising into a saturated audience converts fewer new customers per pound. In each case the fixed factor, the project's structure, the soil, the audience, caps what extra effort can achieve.
Diminishing returns is among the most reliable patterns in economics, and a useful check on the instinct that if some is good, more must be better. Past a point, more of one input applied to a fixed setting simply buys less and less, and the wise question is whether to add a different input instead.