Question

Please explain why the law of diminishing returns applies only in the short-term period.

Answer 1

Law of diminishing returns implies that if an extra unit of variable input is added over fixed input, the total output initially increases at an increasing rate , after some period of time at a constant rate and finally at a decreasing rate. This is because as the proportion of variable input increases , other fixed input factors remaining the same, their marginal and average product gradually decreases. Now, in the short run , at least one of the input factors are kept fixed, whereas, in the long run all factors of production are variable. Hence, law of diminishing returns always operates in only short-run.