Diminishing returns

Diminishing returns occur when increasing one input while holding other inputs fixed produces progressively smaller increases in output. The pattern is distinct from output actually falling.

Marginal product: The additional output produced by one more unit of an input, holding other inputs constant. Diminishing returns describe a decline in this input’s marginal product.
Thomas Robert Malthus: An English cleric and political economist known for his theories of population and food supply. Malthus used diminishing agricultural productivity to explain pressure on living standards.
Short run: A period in economic analysis during which at least one production input is fixed. Diminishing returns are commonly analyzed when some inputs cannot yet be adjusted.
Solow growth model: A model of long-run economic growth driven by capital accumulation, labor, and technological progress. Diminishing returns to capital lead the model toward a steady state without technological progress.
Returns to research and development: The relationship between research investment and the innovations or productivity it produces. Research may face diminishing returns, but knowledge can also create benefits beyond the investing firm.
Production function: A mathematical relationship between quantities of inputs and the output a production process can produce. Its shape represents how output changes as one input increases.
David Ricardo: A British political economist whose work shaped classical theories of rent, distribution, and trade. Ricardo applied diminishing returns to cultivation and the rising cost of food.
Labor productivity: Output produced per unit of labor, such as per worker or per hour worked. Adding workers to fixed equipment or space can reduce their average productivity.
Total factor productivity: The portion of output growth not explained by measured increases in labor and capital inputs. Productivity improvements can counteract the slowdown caused by diminishing returns.
Learning curve: A relationship in which performance improves as cumulative experience with a task increases. Learning can make later production more efficient, offsetting diminishing returns from a fixed input.

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