What is decreasing returns to capital?

Decreasing returns to capital refers to a situation in production where adding more capital, such as machinery or equipment, results in smaller increases in output. As capital input continues to rise, each additional unit of capital contributes less to overall production than the previous one. This phenomenon occurs after reaching an optimal level of capital utilization, leading to inefficiencies and diminishing marginal returns. It highlights the importance of balancing capital and labor to maximize productivity.