<P> In the "law" of diminishing marginal returns, the marginal product initially increases when more of an input (say labor) is employed, keeping the other input (say capital) constant . Here, labor is the variable input and capital is the fixed input (in a hypothetical two - inputs model). As more and more of variable input (labor) is employed, marginal product starts to fall . Finally, after a certain point, the marginal product becomes negative, implying that the additional unit of labor has decreased the output, rather than increasing it . The reason behind this is the diminishing marginal productivity of labor . </P> <P> The marginal product of labor is the slope of the total product curve, which is the production function plotted against labor usage for a fixed level of usage of the capital input . </P> <P> In the neoclassical theory of competitive markets, the marginal product of labor equals the real wage . In aggregate models of perfect competition, in which a single good is produced and that good is used both in consumption and as a capital good, the marginal product of capital equals its rate of return . As was shown in the Cambridge capital controversy, this proposition about the marginal product of capital cannot generally be sustained in multi-commodity models in which capital and consumption goods are distinguished . </P> <P> Relationship of Marginal Product (MPP) with the Total Product (TPP) </P>

The marginal product of the variable input typically falls then rises