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Sometimes referred to as the law of diminishing returns , the law of variable proportions is concerned with the effect of changes in the proportion of the factors of production used to produce output. As the proportion of one input increases relative to all other inputs, at some point there will be decreasing marginal returns from that input. Adding more units of an input, holding all other inputs constant, will at some point cause the resulting increases in production to decrease, or equivalently, the marginal product of that input will decline. Among the inputs held constant is the level of technology used to produce that output. This is an empirical law and is therefore a generalization about the nature of the production process and cannot be proven theoretically (see Friedman, 1976 ; Stigler, 1966 ). Applied to management, Friedman argues that the law of variable proportions requires firms to produce by using inputs in such proportions that there are diminishing average returns to each input in production. ( 1976 ). Price Theory , 2nd edn . Chicago : Aldine . ( 2002 ). Managerial Economics: Economic Tools for Today's Decision Makers , 4th edn . Upper Saddle River, NJ : Prentice‐Hall . ( 1966 ). The Theory of Price , 3rd edn . New York : Macmillan . ... log in or subscribe to read full text