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Law of diminishing returns (view source)
Revision as of 12:58, December 15, 2008
, 12:58, December 15, 2008no edit summary
Note that marginal returns may increase at first based on increases in an input, and the law of diminishing returns merely states that eventually a point of diminishing returns will be reached for each input.
Note that marginal returns may increase at first based on increases in an input, and the law of diminishing returns merely states that eventually a point of diminishing returns will be reached for each input.
The reasoning behind The Law of Diminishing Marginal Returns from a producer's point-of-view in terms of hiring employees, can be simplified into three stages: Specialization, Saturation, and Congestion:
* In the first stage, the addition of more workers allow for specialization of job responsibilities and an increased production efficiency. The result is a larger output return for each additional unit of input.
* The second stage is where inputs equal outputs. Each new employee added will continue to increase production, but only at the same rate as the increased input of labor.
* Congestion refers to the phase when additional workers will start to decrease production efficiency because the work environment is fixed in the short-run. This results in returns that are less than the labor input.
An easy-to-remember example of this law is a person's decrease in satisfaction from eating more and more french fries.
An easy-to-remember example of this law is a person's decrease in satisfaction from eating more and more french fries.
[[category:economics]]
[[category:economics]]