Diminishing returns, law of (Cont.)

The law of diminishing returns is significant because it is part of the basis for economists' expectations that a firm's short-run marginal cost curves will slope upward as the number of units of output increases. And this in turn is an important part of the basis for the law of supply's prediction that the number of units of product that a profit-maximizing firm will wish to sell increases as the price obtainable for that product increases.
[See also: marginal analysis]