Question

What do you understand by the laws of increasing returns and diminishing returns? List four basic assumptions underlying the law of diminishing returns.

Answer 1

Answer:

The law of diminishing marginal returns is a theory in economics that predicts that after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output. For example, a factory employs workers to manufacture its products, and, at some point, the company operates at an optimal level. With other production factors constant, adding additional workers beyond this optimal level will result in less efficient operations.