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What is The Law of Diminishing Marginal Returns?

The Law of Diminishing Marginal Returns means that (assuming that all other factors stay the same) as you increase a particular input in any system, the additional benefit (i.e. marginal benefit) of increasing that particular input decreases gradually. This means that every additional unit gives less incremental benefit than the previous unit.

Description by Kirtan A. (Finance major at IIT Madras)

Let's say you own a pizzeria. With only one person, it is difficult to keep on top of taking orders, baking the pizza, delivering, and bussing tables. So you hire 5 more people to help you with these tasks but what would happen if you hired 100?

The first five really amped up your productivity and efficiency. However, after about the fifteenth, there really was not enough work to go around. After the thirtieth, the employees were constantly running into each other and getting in the way. By the time you get to 100, even the first few cannot perform their duties all of the way with so many people. Thus, as more inputs (labor) are added, the less return you get per person you add.

Description by Julia W. (Agribusiness Management major at University of Missouri)

The Law of Diminishing Marginal Return is the tendency for marginal utility to decrease as quantity increases. Basically means that one receives less satisfaction for a thing the more times they do it.

Description by Armin R. (Finance Honors major at University of Texas at Austin)

Holding all else constant, the Law of Diminishing Marginal Returns dictates that at a certain point adding one more production unit will begin to yield smaller/fewer units of output. The way I like to think about it is: If you have a factory, it can generally be assumed that adding one more worker or one more machine will help to produce much more output and make things more efficient. However, if you continue to add so many workers and/or so many machines, things actually become less efficient and marginal output decreases because everything is so crowded in that factory.

Description by Emily G. (Communication Studies/Economics major at University of Michigan)

Why study The Law of Diminishing Marginal Returns?

The Law of Diminishing Marginal Returns is the concept that, as we increase resources of production while keeping at least one other resource constant, eventually we we lose productivity. Take for example a typewriter and a secretary who works 8 hours a day. If we add another secretary, who works another 8 hours, the amount of typing doubles. However as we continue to add secretaries, the amount of typing will eventually stay the same and marginal returns will decrease as there are only 24 hours in a day and too many secretaries for the one typewriter.

Description by Alison W. (International Development, Economics major at GSPIA, University of Pittsburgh)

A concept in economics that if one factor of production (number of workers, for example) is increased while other factors (machines and workspace, for example) are held constant, the output per unit of the variable factor will eventually diminish.
Although the marginal productivity of the workforce decreases as output increases, diminishing returns do not mean negative returns until (in this example) the number of workers exceeds the available machines or workspace. In everyday experience, this law is expressed as "the gain is not worth the pain."

Description by Ian G. (Business Economics major at Brown University / Hired Analyst at a Leading Consulting Firm)

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