In economics, diminishing returns (also called diminishing marginal returns) is the decrease in the marginal (per-unit) output of a production process as the amount of a single factor of production is increased, while the amounts of all other factors of production stay constant.
The law of diminishing returns (also law of diminishing marginal returns or law of increasing relative cost) states that in all productive processes, adding more of one factor of production, while holding all others constant (“ceteris paribus“), will at some point yield lower per-unit returns. The law of diminishing returns does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in fact this is common.
By increasing production your costs will be lowered, but there will come a time when the lowest costs is reached, where by adding any additional factors it will no longer lower the costs anymore, and if profit equals to nil, nobody will be interested to produce anymore, therefore the rules of preventing “destructive competition” applies and a healthy margin is required to carry on producing goods and services, the fundamentals of the New Economy is not a monopolistic principle, but it teaches one to use knowledge of the markets to find your own niche, there are so many horizontal markets to consider, no need to compete vertically until you kill yourself.
– Contributed by Oogle.