Diminishing Marginal Returns Law

A Diminishing Marginal Returns Law is a law that ...

• AKA: Law of Diminishing Marginal Returns.
• See: Marginal Return, Marginal Cost, Submodular Function, Factors of Production, Ceteris Paribus.

---

---

References

2015

• (Wikipedia, 2015) ⇒ http://en.wikipedia.org/wiki/Diminishing_returns Retrieved:2015-1-26.
  • In economics, diminishing returns (also called law of diminishing returns, law of variable proportions, principle of diminishing marginal productivity, or diminishing marginal returns ) is the decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant. The law of diminishing returns states that in all productive processes, adding more of one factor of production, while holding all others constant ("ceteris paribus”), will at some point yield lower incremental per-unit returns. The law of diminishing returns does not imply that adding more of a factor will decrease the total production, a condition known as negative returns, though in fact this is common. For example, the use of fertilizer improves crop production on farms and in gardens; but at some point, adding increasingly more fertilizer improves the yield by less per unit of fertilizer, and excessive quantities can even reduce the yield. A common sort of example is adding more workers to a job, such as assembling a car on a factory floor. At some point, adding more workers causes problems such as workers getting in each other's way or frequently finding themselves waiting for access to a part. In all of these processes, producing one more unit of output per unit of time will eventually cost increasingly more, due to inputs being used less and less effectively. The law of diminishing returns is a fundamental principle of economics. It plays a central role in production theory.

2014

• http://www.investopedia.com/terms/l/lawofdiminishingmarginalreturn.asp
  • QUOTE: A law of economics stating that, as the number of new employees increases, the marginal product of an additional employee will at some point be less than the marginal product of the previous employee.

    Consider a factory that employs laborers to produce its product. If all other factors of production remain constant, at some point each additional laborer will provide less output than the previous laborer. At this point, each additional employee provides less and less return. If new employees are constantly added, the plant will eventually become so crowded that additional workers actually decrease the efficiency of the other workers, decreasing the production of the factory.

---