Law of Diminishing returns says that as variable factors are added to some given and constant fixed factors, at some point adding a variable factor will decrease productivity and efficiency of the bussiness.for.eg.If there is one worker in KFC.So if there is one guy working there, he is going to work very slow.Cause he has to do everything.But when one more worker is added, the work is divided between the workers.In other words there is specialization.When there is specialization the productivity will increase.If one guy produced 5 meals, with help of the new guy he will produce 12 meals. Meaning each worker has produced 6 chikens. In economic terms the average output has increased by 1. so it is clear that productivity has increased.
Every unit of worker we add,the productivity of KFC increases as there is more specialisations. At the certain point the new workers won't increase the productivity or at some points make negative growth. There will be a decrease in average output.
Foreg.If there are too many workers in one KFC branch,they wont have enough space to move or they will not enough work to do. They may chat a lot together, and hence the productivity will go down. Its like putting too many fertilizers in one land and kill all the plants.At first adding fertilizers increase the productiviy and harvest improved but at some point it killed the plants.
Thats Law of diminishing returns in simple words.
Now you better go and study it in economic terms in following websites.