Diminishing Marginal Returns
Definition
Diminishing marginal returns is a concept that states as more units of a variable input (like labor) are added to a fixed input (like capital), the additional output produced by each additional unit of the variable input will eventually decrease. In other words, there comes a point where adding more of a resource leads to smaller increases in output.
Analogy
Imagine you have a group project and you're working with your classmates. At first, adding more members to the group increases productivity because tasks can be divided efficiently. However, if too many people join the group, coordination becomes difficult, and productivity starts to decline.
Related terms
Marginal Product: Marginal product refers to the change in total output resulting from using one additional unit of input while keeping other inputs constant.
Law of Diminishing Returns: The law of diminishing returns states that as more units of a variable input are added to fixed inputs, beyond a certain point, the marginal product will start decreasing.
Total Product: Total product is the overall quantity or amount of output produced by all units of inputs used in production.
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