What does the Law of Diminishing Returns state?

The Law of Diminishing Returns indicates that as you continue to add more of a variable input (e.g., labor or raw materials) to a fixed input (such as land or machinery), there comes a point where each additional unit of input produces less and less additional output. This means that while initially, increasing input leads to higher output, the benefits begin to decline after a certain point.

This principle highlights the critical interplay between different types of inputs in production and emphasizes the limits of efficiency that can be achieved. In practical terms, a farmer may reap increasing crop yields by adding more fertilizer initially, but beyond a certain level, the subsequent addition of fertilizer may lead to lesser increases or even a decrease in crop yield due to over-saturation or nutrient depletion.

Other options reflect misunderstandings of this law. The idea that more input always results in higher output overlooks the diminishing returns aspect. The notion that fixed resources produce constant yields ignores the variable interaction between inputs, while suggesting that variable inputs are independent of fixed inputs does not recognize the core relationship governed by diminishing returns.