Diminishing returns
Also called: law of diminishing marginal returns
Diminishing returns means that adding more of one input, while others stay fixed, eventually adds less and less output. A tenth worker in a small kitchen adds less than the second.
It is a short-run idea: with one input fixed, the others crowd it. It explains why marginal cost curves eventually slope up.
Related terms
- Marginal cost: Marginal cost is the cost of producing one more unit.
- Economies of scale: Economies of scale are the cost savings a business gets as it grows: the average cost of each unit falls as it produces more.
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