It is the third law of economies used in the production scales of firms and industries. “Other things remain same, if the marginal productivity of a good decrease in the result of increasing the number of variable factors of production, then it will be known as law of decreasing return”
In other words we can say that if increasing the number of variable factors of production cause a decrease in the marginal productivity of good than it will called as law of decreasing return.
As in the table, we can clearly see that increasing the number the units of labor cause a continuous decrease in the marginal productivity of good or product, although the total productivity of the good is increasing continuously.
Following are the assumptions:
- The fixed factors of production must remain constant.
- There should be no change in the means of production of such product or good.
- The units of variable factors of production should be homogenous.
The level of combination between the factors of production should reach its end or must reach its limit.