Which of the following states the law of diminishing marginal product?

The correct answer is Option (4) → If we keep increasing the employment of an input with other inputs fixed, a point will be reached after which the marginal product of that input will start falling.

The law says that MP does not fall at once. As more of one input is used with others fixed, a point is reached after which its MP falls.

Option (1) If we keep increasing the employment of an input with other inputs fixed, the marginal product of that input falls from the first unit itself. — Incorrect. MP first rises; it starts falling only after a certain level.

Option (2) If we keep increasing the employment of an input with other inputs fixed, its average product starts falling as soon as its marginal product starts falling. — Incorrect. AP keeps rising while MP is above AP, even after MP has begun to fall. AP falls later.

Option (3) If all inputs are increased in the same proportion, output increases by a smaller proportion. — Incorrect. Raising all inputs in the same proportion is about returns to scale. A smaller rise in output is decreasing returns to scale.

Option (4) If we keep increasing the employment of an input with other inputs fixed, a point will be reached after which the marginal product of that input will start falling. — Correct. This is the law in the words of its definition.