Unit 2.2 · Supply
Law of Diminishing Marginal Returns
AO2HL
Syllabus Requirement
As more units of a variable input are added to a fixed input, the marginal product of the variable input eventually decreases.
Assessment Objectives
AO2Application and Analysis
HLThis topic is assessed at Higher Level only.
Summary
The law of diminishing marginal returns explains how the output of a firm changes when it increases variable inputs while keeping at least one factor of production fixed in the short run. This concept is important in understanding production efficiency and cost management in economics.