Where can the "Law of diminishing returns" be observed?
The law of diminishing returns states that when a single factor of production | ||||||||||||
is increased keeping all other factors constant, there is a decrease in the marginal (incremental) output of the production process. | ||||||||||||
The law of diminishing marginal returns can be observed in a software company hiring workers to write code for a given project. | ||||||||||||
As the code keeps increasing, the company hires more workers. However after a point in time the extra code that a new worker | ||||||||||||
will decrease as the number of workers keeps increasing. This is because of the following factors: | ||||||||||||
1) inefficiency | ||||||||||||
2) overcrowding | ||||||||||||
3) supervision of the management of a larger workforce. |
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