Law of diminishing returns :- In short run period, when other factors of production remains constant. If MP decreases with the increase in units of variable factor, then it is termed as law of decreasing returns.
Assumptions –
(i) This law is only related to short run period.
(ii) One factor of production is variable while others are fixed.
(iii) Units of variable factor are homogeneous and divisible.
(iv) Management and production technique will remains constant.
(v) Output is expressed in physical terms not in
When this law applies to a firm its MP and AP of variable factor both decreases, with the increase in units of variable factor, but MP is lesser than AP.
Therefore AP and MP both curves are downward sloping.