By the law of returns (pp. 4.4:46-50), the average and marginal returns from each factor will begin to decrease once a certain optimum point is passed. For factor1, for instance, larger and larger factor1 investments will be required in order to obtain each additional unit of output. At the same time, as Smith and other producers allocate larger and larger quantities of each factor, the market demand for that factor and hence its money value will rise. Consequently, the marginal cost of production for each additional unit of the consumers' good will increase steadily as more and more of that good is produced.

Meanwhile, as more and more of the consumers' good is brought to market, its marginal utility to buyers will fall, eventually leading to a drop in its per-unit price. In short, the producers' marginal return is diminished both by the increasing marginal cost of production and decreasing price of the consumers' product. Indeed, if a certain break-even point were passed, the marginal cost would exceed the price, yielding a negative marginal return.

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