The firm must be experiencing diminishing marginal returns, when an additional unit of a variable input adds less to total product than the previous unit.
Diminishing marginal returns, or simply called "diminishing returns", refer to proportionally smaller profits or benefits derived from something as more money or energy is invested in it.
According to the law of diminishing marginal returns, increasing a factor of production by one unit, while holding all other production factors constant, will eventually return a lower unit of output per incremental unit of input. The law does not cause a decrease in overall production capabilities; rather it defines a point on a production curve whereby producing an additional unit of output will result in a loss, which is known as negative returns.
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