What Is the Point of Diminishing Returns?


Quick Answer

The point of diminishing returns is the point at which the benefits received from adding one more unit of input to a product begin to decline if all the factors of input are held constant. The point of diminishing returns is a fundamental concept of economics.

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Full Answer

Benefits derived from adding a unit of input are not set for the long term. Changes in technology can vary the cost of input, and subsequently influence the value of the benefits received from each unit of input. The point of diminishing returns is more often used as a short term measure of productivity. Choosing to add another unit of input after reaching the point of diminishing returns may increase production, but not profits per unit of production.

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