Negative Marginal Returns

Definition

Negative marginal returns occur when adding an additional unit of a variable input leads to a decrease in total output rather than an increase.

Analogy

Imagine you're baking cookies and you add too much salt to your dough. Instead of making your cookies taste better with each pinch, adding too much salt ruins the entire batch and makes them taste worse.

Related terms

Diminishing Marginal Returns: While diminishing marginal returns refer to decreasing additional output per unit, negative marginal returns specifically indicate that total output is decreasing.

Sunk Costs: Sunk costs are expenses that have already been incurred and cannot be recovered. In decision-making, sunk costs should not be considered since they cannot be changed.

Production Function: A production function shows how inputs (such as labor and capital) are combined to produce output. It represents the relationship between inputs and outputs in a production process.