2.2.2 (HL)—Assumptions behind supply

At HL, the law of diminishing marginal returns states that, with at least one fixed factor, adding successive units of a variable factor eventually produces smaller additions to output.

When each extra worker or input adds less output, producing one additional unit requires more variable input. Marginal cost therefore rises, so firms normally require a higher price to make supplying additional units worthwhile—supporting an upward-sloping supply curve.

Identify the fixed and variable factors, show where marginal product begins to fall, connect this to rising marginal cost, then connect higher price to greater quantity supplied.

In a fixed-size kitchen, early additional cooks raise output strongly, but overcrowding eventually means each extra cook adds fewer meals. Extra meals then cost more labour to produce.

Diminishing marginal returns is a short-run production mechanism, not merely ceteris paribus and not the same as total output falling. Total output can still rise while marginal product falls.