A local bakery has been increasing the number of bakers it employs to produce more bread. Initially, the production output increases significantly with each new baker hired. However, after hiring several bakers, the owner notices that adding more bakers results in smaller and smaller increases in bread production. What concept explains this phenomenon?

The concept that explains this situation is called diminishing marginal returns. This means that as more bakers are added to the bakery, each new baker contributes less to the total bread production than the previous one. For example, if the first baker can produce 100 loaves a day, the second might produce 120, but the third may only produce 130 loaves. This happens because there are only so many ovens and space available, so adding more bakers eventually leads to crowding and less efficient work. As a result, while production does increase, the gains from each additional baker start to shrink.