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Definition of

law of diminishing returns

Economics

increase in one area has limited effect a rule stating that as one factor of production is increased, while others remain constant, the extra output generated by the additional input will eventually fall. The law of diminishing returns therefore means that extra workers, extra capital, extra machinery, or extra land may not necessarily raise output as much as expected. For example, increasing the supply of raw materials to a production line may allow additional output to be produced by using any spare capacity workers have. Once this capacity is fully used, however, continually increasing the amount of raw material without a corresponding increase in the number of workers will not result in an increase of output.

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Definitions of ’law of diminishing returns’ and meaning of ’law of diminishing returns’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’law of diminishing returns’ and other financial terms with our online QFINANCE Financial Dictionary.

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