UK Accounting Glossary
Diminishing return, or the law of diminishing return, is an economic tenet, which provides that adding additional units of productivity beyond a certain threshold will incrementally regress production returns. The law of diminishing return is a product of Europe at the turn of the eighteenth century, where it was put forth toward free trade and agriculture. In a broad sense, the law of diminishing return states that employing additional workers may initially increase productivity. However, after a certain point adding new units of labour will result in diminishing return. This means that adding each new worker will create a marginal diminishing return, which at some point may even lead to the overall diminishing return of the entire production facility. If all other facets of production remain the same, diminishing return is typically brought on by the overpopulation of the labour force. A diminishing return may also be associated with the hiring of less than adequately skilled resources.
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This glossary post was last updated: 9th February 2020.