In the context of marginal cost and benefit analysis, how does the principle of diminishing returns affect market equilibrium when additional units of a good are produced?

In marginal cost and benefit analysis, the principle of diminishing returns means that as we produce more units of a good, the additional benefit we gain from each new unit starts to decrease. This happens because resources like time, labor, and materials become less effective when used beyond a certain point. For example, if a farmer keeps adding fertilizer to a field, the first few applications may greatly increase crop yield, but after a certain amount, each extra application leads to smaller increases or even harm to the plants. When this principle is at play, the cost of producing each additional unit can rise faster than the benefit it provides, leading to a point where it no longer makes sense to produce more. This balance helps determine market equilibrium, where the quantity supplied equals the quantity demanded, ensuring that resources are used efficiently without waste.