Law of Diminishing Marginal Utility vs Law of Diminishing Marginal Returns

The law of diminishing marginal utility states that each additional unit of a good consumed adds less extra satisfaction than the unit before it.

As consumption rises, marginal utility falls. It helps explain why demand curves slope downward, since consumers will only buy more at lower prices. It underlies the consumer's utility-maximizing choice.

The law of diminishing marginal returns states that adding more of a variable input to fixed inputs eventually yields smaller increases in output.

As a firm adds workers to a fixed amount of capital, marginal product may rise at first but eventually falls. This causes marginal cost to rise, shaping the upward-sloping part of the cost curves. It applies only in the short run, when at least one input is fixed.