Which economic principle describes diminishing returns?

• A. Conformity
• B. Competition
• C. Diminishing Return
• D. Contribution

Answer: (C)

Diminishing returns describes how adding more of one input to production, while other inputs are fixed, leads to smaller and smaller increases in output. At first, each additional unit of the input boosts production noticeably, but after a point the gains from each extra unit start to shrink, and could even level off or reverse if inefficiencies or bottlenecks appear. For example, in a workshop with a fixed amount of equipment and space, hiring more workers may raise output initially, but as the workspace becomes crowded or equipment becomes a bottleneck, each new worker adds less and less to total production. That shrinking gain from additional input is what this concept captures. The other terms describe different ideas—conformity relates to social influence, competition to market rivalry, and contribution to giving or adding value—so they don’t describe the phenomenon of decreasing incremental output.