A bakery currently employs three bakers and produces 120 loaves of bread per day. When they hire a fourth baker, they notice production increases to 140 loaves. However, when they hire a fifth baker, production only increases to 150 loaves. What principle best explains this situation, and how should the bakery adjust their hiring practices based on this observation?

The situation at the bakery can be explained by the principle of diminishing marginal returns. This principle states that as you add more workers to a fixed amount of resources, each additional worker contributes less to overall production after a certain point. In this case, when the bakery hired the fourth baker, production increased by 20 loaves, but the fifth baker only added 10 loaves. This suggests that while hiring more bakers can increase output, the benefit decreases with each new hire. Therefore, the bakery should be careful when hiring more bakers, as they might not get a good return on their investment if the production increase is minimal.