Final answer:
The law of diminishing marginal productivity states that as more labor is employed, the additional output produced by each additional worker eventually decreases. This occurs due to fixed capital in the short run.
Step-by-step explanation:
The law of diminishing marginal productivity states that as a firm employs more labor, the additional output produced by each additional worker eventually decreases. Initially, adding more workers may increase the marginal product, but there comes a point where additional workers have a decreasing marginal product or even a negative effect on output. This occurs because of fixed capital in the short run.
Diminishing marginal productivity is similar to the concept of diminishing marginal utility. Both concepts demonstrate the more general idea of diminishing marginal returns.
Diminishing marginal productivity occurs due to fixed capital. In production, fixed capital refers to the long-lasting equipment, machinery, and infrastructure used in the production process. In the short run, a firm has a fixed amount of fixed capital, which limits the productivity of additional workers.