Diminishing returns, also called law of diminishing returns is the decline in the marginal output

of a production process as the amount of a single factor of production is incrementally increased,

while the amounts of all other factors of production stay constant. It is an economic guideline
expressing that as investment in a specific area increases, the rate of profit from that investment,
can't keep on expanding after a definite point if different variables stay at a constant. As
investment proceeds to cross that point, the return decreases gradually. For instance, in a
production process, including more laborers may at first expand output and in the long run
creates the optimal output per laborers. Later than that optimal point, the efficiency of each
laborer decreases because other factors stay constant.
The law of diminishing returns applies in the short run because the short run is a period of time
in which at least one factor of production is fixed. In the long run, all factors are variable. Total
product tells the amount of output produced for each quantity of a variable input. The marginal
product tells the change in the total product when the variable factor changes by one unit. The
source of the law is that resources are not perfect substitutes. To get an additional unit of output,
only the variable input can be increased. But the variable input is an imperfect substitute for the
fixed input so we get less and less extra output for each additional unit of the variable input. Thus
marginal product must fall. For instance, the use of fertilizer enhances crop production however
after some point, adding increasingly more fertilizer improves the yield by less per unit of
fertilizer, and excessive quantities can even reduce the yield. Moreover, we can see the law of
diminishing returns in present context as well. For instance, doubling the budget on a social
media marketing campaign will double the returns while the increment could without much of a
stretch direct to accumulation on information on a single social media channel grounds the
returns to decrease considerably.

To sum up, the law of diminishing returns state that as an increasing amount of a variable factor
is added to a fixed factor, the marginal product of the variable factor may at first rise but must
eventually fall. The law of diminishing returns is a basic principle of economics. It plays a vital
role in production theory.
References:
Article: Diminishing Returns. (2011). Wikimedia Foundation Web site. Retrieved November 5,
2015 from https://en.wikipedia.org/wiki/Diminishing_returns
Business terms: law of diminishing returns definition. (n.d.). Search CRM Web site. Retrieved
November 5, 2015 from http://searchcrm.techtarget.com/definition/law-of-diminishingreturns