What does the law of diminishing marginal product state?

The law of diminishing marginal product indicates that as additional units of a variable input, such as labor, are added to a fixed amount of another input, such as machinery or land, the additional output produced by each new unit of labor will eventually decrease. This means that while the total output may still be increasing, the rate of that increase will diminish.

In practical terms, when too many workers are added to a fixed amount of capital, each additional worker contributes less to total output than the previous workers did. This is because they have less capital to work with or may become less efficient due to overcrowding or other factors. Therefore, the correct answer illustrates that while output continues to rise, the rate at which it rises becomes slower as more labor is added, reflecting that increase but at a decreasing rate.

This insight is critical for understanding production processes and can help businesses and economists optimize resource allocation in order to achieve the maximum efficient output. It clarifies the balance in the use of labor in conjunction with fixed resources in production scenarios.