Law of Diminishing Marginal Returns (redirected from law of diminishing returns)

Law of Diminishing Marginal Returns

In economics, the theory stating that each additional employee of a business is slightly less productive than the previously hired one. If all other factors remain constant, there is only so much production a business can provide. If it keeps hiring more employees, each employee will have less to do; in an extreme case, this can lead to payment for virtually no work. This may also apply to other factors of production; for example, if a factory increases the number of widget making machines but does not increase the number of employees to run them, eventually the widget machines simply take up space and tie up capital. The law of diminishing marginal returns is important to determining how much supply of a product a business can handle without diminishing productivity. See also: Austrian school, Law of Diminishing Marginal Utility.