– This law states that keeping other factors fixed, upon increase in one variable factor marginal product initially increases and after that it declines and when variable factor becomes relatively abundant MPP becomes negative.

– This principle explains input-output relationship.

–  It helps  manager in making decision how much to produce.

Three stages of this law:

a) Increasing marginal return

b) decreasing marginal return

c) negative marginal return

This law of diminishing return is mostly applicable in agriculture because of following reasons:

a) Over dependency of agriculture in weather conditions

b) There is less scope for mechanization in agriculture sector mainly due to fragmentation problem in agricultural land.

c) There is less scope for division of labour.

d) There is use of marginal and unproductive land in case of agriculture.

e) Continuous cultivation in agricultural land.