What are diminishing marginal returns?
- Diminishing Marginal Returns is an economic principle that happens when a factor of production is increased and at some point, each additional unit produced will decline.
How Do I Remember it?
- Think of “Diminishing Marginal Returns” as a point where adding more of a particular input yields smaller and smaller increases in output. It’s like trying to fit too many people into a car; at some point, adding one more person might not contribute as much to the overall experience.
Real World Example
- Imagine a smartphone factory with a fixed number of assembly lines and machines. Initially, as more workers are added to the production line, the output of smartphones increases rapidly. However, beyond a certain point, adding more workers to the already efficient assembly line might not lead to significant increases in production.
- In fact, there may even be disruptions, overcrowding, and inefficiencies, resulting in diminishing marginal returns. Each additional worker contributes less and less to the overall smartphone output, reflecting the principle of diminishing marginal returns.
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By: Ryan Aquino
