Question

Is anyone logged on good at Microeconomics? I need the principle of diminishing returns explained to me.

Answer 1

The law of diminishing returns is simply, there comes a time when more input doesnt produce the same level of output.

For example, say running 5 miles a day is good for you; then 6 miles a day should be even better right? how about 10 miles? 50 miles? 360 miles? There comes a point when the amount of effort does not produce the same amount of return.

Spose your hungry, and you go to an all you can eat free buffet. That first plate is soooo goood, and you get up to get more, but after each trip the "utility" that you get from each plate decreases until you simply quit going back for more.

Answer 2

this "phenomena" can be explained in the working culture of Asia... whereby working overtime is common. So, it works this way, when a person is working way past his usual hours, what do you think will happen to his productivity? In the morning, very motivated to finish his job and starts to gear up for the day, in the afternoon, stronger than ever though slightly exhausted, nighttime, oh, spirit might be faltering a bit, midnight, yeah! he'll be asking himself "why on earth i'm still at office???".

So it works this way, when we focus too much on improving productivity, we tend to forget to manage things well at that particular stage before taking it to the next level.

Answer 3

My father is an economist and explained diminishing returns to me thusly:

Let's say you are in the desert and you are parched. You haven't had anything to drink in a day. Suddenly, you see a vendor selling cans of Coca Cola. For the first Coca Cola, you are willing to pay any price because you are thirsty. The second can you may even pay a lot for as well, knowing that you may need a can to drink later at some point. However, as you buy more and more cans, the price of each can will go down because you just don't need it.

In this example, the vendor would be experiencing "diminishing returns" from selling cans of Coca Cola. Every can will "return" less and less.