Previously, I believed that after a certain point, additional variable input results in a decline in productivity. For example, if you hire too many waiters, they will eventually get in the way of each other, resulting in a decline in productivity.

However, I read online (https://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=marginal+cost+and+law+of+diminishing+marginal+returns) that "The law of diminishing marginal returns means that increased production of a good requires more and more of the variable input. For example, the first 50 units of production can be had with only 5 workers. However, the next 50 units might required an additional 10 workers. "

But doesn't this contradict with the law of diminishing returns? The law states that as more and more of an input is used, there is a point at which the increase in output is at a decreasing rate. So is the website wrong? Wouldn't increasing even more variable input decrease production even more?

For example, at a car factory, at some point after hiring many workers, productivity decreases. Isn't the website stating that the solution to this is hiring even more workers, which is counter-productive?


1 Answer 1


The two statements are similar.

For the website example, you could say that the marginal product of the first 5 workers is 50 units. For the next 5 workers, however, you could deduce that the marginal product is less than 50 units (otherwise "the next 50 units" would require exactly 5 workers, not 10 workers).

The website is merely stating that, in order to get the same number of outputs (in this case 50 units) you need to hire proportionally more inputs. To judge whether this is counter productive requires knowledge about the price you could sell these products, etc.


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