In my economics class, we learned that in the short run, there are three stages of marginal returns: increasing, decreasing, and negative.
As a firm adds the first few units of labor, specialization allows for increasing marginal returns (Stage 1). This makes sense to me.
As one adds more units of labor, marginal returns decrease due to limited capital (Stage 2). This also makes sense to me.
However, in Stage 3, there are negative marginal returns (total product decreases). How is this possible? In practice, the firm would lay off the final worker(s), and the firm would never reach Stage 3 unless management was totally incompetent. However, by the theory of specialization that causes Stage 1, if, say, a factory could produce 30 items with 6 workers but could only produce 27 items with 7 workers, it seems as though the factory, assuming it kept 7 workers on its payroll, would simply have one worker "specialize" in sitting outside, letting the other 6 workers operate independently of the one sitting outside and thus produce 30 items. By that argument, if the firm kept hiring more workers, it could have those newly hired workers sit outside, so that total product would remain constant and marginal product would never be negative. Where am I going wrong?