PRINCIPLE of Diminishing Returns PRINCIPLE of Diminishing Returns Suppose that output is produced with two or more inputs and that we increase one input while holding the other inputs fixed. Beyond some point�called the point of diminishing returns�output will increase at a decreasing rate. Principle of diminishing returns Constant or linear production responses to inputs are rare in agricultural production. As mentioned above, the yield response to nitrogen will, at a point, start to decline, which is illustrated in the diagram below. Between points A and B, the relationship between inputs and production is linear or constant. At point B, the response starts to diminish and between C and D, it falls. This means that when we reach point C, it is not worth adding more nitrogen because the yield response is then negative. Max. Yield ? Max. Profit The maximum yield is at point C, but the maximum profit is somewhere between B and C. In other words, maximum yield is not the same as maximum profit, because the marginal cost might be higher than the marginal revenue when the yi......

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