What is the law of diminishing marginal returns?

The law of diminishing marginal returns states that as more units of a variable factor of production are added to fixed factors, the additional output produced by each new unit will eventually decline after a certain point. In other words, while the initial increases in input can lead to proportionate increases in output, there comes a stage where adding additional units of the variable input will produce less and less additional output. This principle is vital in production theory as it highlights the limitations of increasing one factor of production in a setting where other factors remain constant.

To clarify the other options: the idea that output increases linearly with every input does not align with this law, as it suggests that each added unit would produce the same increase in output, which is not the case. The incorrect choice regarding fixed factors not affecting marginal returns overlooks that fixed inputs do play a significant role in limiting the effectiveness of variable inputs beyond a certain point. Lastly, the notion that all factors of production remain constant is not accurate under the framework of diminishing marginal returns, as this principle inherently involves analyzing changes with a variable factor while keeping others stable. Thus, the definition captured in the correct answer accurately reflects the essence of the law of diminishing marginal returns.