Overview
Diminishing marginal returns is a fundamental concept in economics that describes how adding more of one input to a fixed input will eventually lead to smaller increases in output. This principle is crucial for understanding production efficiency and resource allocation in various industries, includ...
Key Terms
Example: If hiring one more worker increases output from 10 to 15 units, the marginal product is 5.
Example: A factory building is a fixed input that cannot be easily increased.
Example: Hiring more workers is a variable input that can be adjusted quickly.
Example: The production function shows how many units of output can be produced with different combinations of inputs.
Example: If 5 workers produce 100 units, the total product is 100.
Example: If 100 units are produced by 5 workers, the average product is 20 units per worker.