The Law (or Principle) Of Diminishing Marginal Returns (or Productivity) Explained in One Minute

Most people refer to it as the law of diminishing returns, whereas more economics-savvy individuals tend to call it the law of diminishing marginal returns. It's worth noting that calling it the principle of diminishing marginal productivity is equally correct.

At the end of the day, no matter which terminology you choose, the law of diminishing marginal returns simply makes it clear that if you increase one factor of production by for example hiring additional employees, you will generate additional returns... but lower and lower returns. Assuming that everything else remains constant, of course.

In other words, you cannot increase your profits to infinity by continuously hiring other employees but leaving everything else intact. Eventually, that will just turn into a nightmare and as such, as explained in this video, you will have to eventually tweak the other factors of production as well. For example, by getting a larger space.

Think of the law of diminishing marginal returns as a foundational microeconomics term or, if you will, a healthy dose of economic common sense. If nothing else, the principle of diminishing marginal productivity makes it clear that linear economic thinking can only get you so far.

In other words, a linear approach such as the one explained in this video (adding more labor to the mix) works until it doesn't... in a nutshell, this is what the law of diminishing returns is all about :)

Видео The Law (or Principle) Of Diminishing Marginal Returns (or Productivity) Explained in One Minute канала One Minute Economics