Econ: What are Marginal Product and Diminishing Returns?

What are Marginal Product and Diminishing Returns? Marginal product measures how much more can be made if one more person is hired; i.e. what is the difference in output from say, three workers to four workers. Diminishing returns is the idea that eventually, hiring more workers won’t result in an effective change in output or productivity. So, the goal of companies is to hire as many workers as needed to maximize output without the law of diminishing returns kicking in and having too many workers to the point that they’re no longer as effective.

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output But how do you know if it's worth it

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or not Adm Or of a given input finding the

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marginal product of an input can help you answer this

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excellent question Well the marginal product of an input whether

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it be physical inputs or labour is the increasing output

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as a result of one additional unit of that input

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Okay let's make sense of this to see what we

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mean Let's take a look at Black Beard who for

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having a very short pirating career is nonetheless known for

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being a decent manager of his crew At first Black

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Beard had a small crew because his crew was small

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Their rum booty was also pretty small They couldn't battle

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big ships that were holding the most gold and they

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could only carry so much of it even when they

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won in stolen well black Beard hired another pirate which

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increased their total booty from a thousand pieces of eight

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to thirteen hundred pieces of eight since the booty went

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from a thousand of thirteen hundred thanks to the additional

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of that new employees will The marginal product of that

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new hire was three hundred pieces of eight and if

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he cost less than three hundred pieces of aid right

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he was a bargain At least he was positive The

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results of another mate in the crew were so great

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that black beard decided to hire another pirate and then

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another and then another Well even though the marginal product

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with each new input of labor was less than last

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he kept hiring more pirates Since each new pirate was

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still contributing positively to Ah hire total output well with

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a bigger crew they were able to take on bigger

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ships increasing their total output All other inputs like their

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pirate ships stayed constant It was the same ship as

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the crew's size increased Well so did the amount of

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booty they were scoring and who doesn't like to score

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booty But the law of diminishing returns has a way

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of making it rain on everyone's parade The law of

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diminishing returns pops up in many places in economics including

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marginal product like right here while increasing a marginal product

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like labor for instance will increase total output for awhile

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Eventually additional units of that input will result in a

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stagnant or decreased total output Well after Black Beard's most

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recent pirate higher alluding went terribly wrong There were so

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many pirates on his ship that they couldn't loot effectively

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They were bumping into each other accidentally shooting each other

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right in the head or worse and they were frustrated

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because of it Well all of a sudden they're total

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output Their booty dropped from three thousand pieces of eight

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to only twenty five hundred pieces of eight Argh Yeah

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that's what they said Well in Black Beard's case his

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output was initially increasing as he grew his crew but

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eventually decreased because of it The last pirate he hired

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had a negative marginal product of five hundred pieces of

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eight Since that last additional unit of labor input caused

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total output to go from three thousand pieces of eight

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to twenty five hundred piece of aid or something that

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was just making So what's a pyre to do Well

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he could get another ship and start a franchise or

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a fleet Or he could let that last pirate walk

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the plank and just stick with one ship and his

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given number of pirates A zit is well the more

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the merrier Up to a point Ask any pirate and