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Law of Diminishing Returns
Law of Diminishing Returns
Law of Diminishing Returns
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Overview

Think back to the last time you overindulged in a huge, delicious dessert. It’s likely that the first bite was divine, but perhaps ...

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Quae contraria sunt his, malane? Tria genera cupiditatum, naturales et necessariae, naturales et non necessariae, nec naturales nec necessariae. Expressa vero in iis aetatibus, quae iam confirmatae sunt. Nam et complectitur verbis, quod vult, et dicit plane, quod intellegam; Quae similitudo in genere etiam humano apparet. Primum in nostrane potestate est, quid meminerimus? Plane idem, inquit, et maxima quidem, qua fieri nulla maior potest. Duo Reges: constructio interrete.

Quid censes in Latino fore? Quid enim me prohiberet Epicureum esse, si probarem, quae ille diceret? Illa argumenta propria videamus, cur omnia sint paria peccata. Quid, si etiam iucunda memoria est praeteritorum malorum? Mihi, inquam, qui te id ipsum rogavi?

Voluptatem cum summum bonum diceret, primum in eo ipso parum vidit, deinde hoc quoque alienum; Multoque hoc melius nos veriusque quam Stoici. Primum in nostrane potestate est, quid meminerimus? Iam illud quale tandem est, bona praeterita non effluere sapienti, mala meminisse non oportere? An me, inquis, tam amentem putas, ut apud imperitos isto modo loquar? An est aliquid per se ipsum flagitiosum, etiamsi nulla comitetur infamia? Si verbum sequimur, primum longius verbum praepositum quam bonum. Quaero igitur, quo modo hae tantae commendationes a natura profectae subito a sapientia relictae sint.

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Actionable Takeaways
  • Find the optimal peak. 

Know that ‘more of a good thing is not always better’ ...

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Illi enim inter se dissentiunt. Ita prorsus, inquam; Non igitur de improbo, sed de callido improbo quaerimus, qualis Q. Quid de Platone aut de Democrito loquar?

Utilitatis causa amicitia est quaesita. Si mala non sunt, iacet omnis ratio Peripateticorum. Igitur ne dolorem quidem. Quis non odit sordidos, vanos, leves, futtiles? Duo Reges: constructio interrete. Illa argumenta propria videamus, cur omnia sint paria peccata. Universa enim illorum ratione cum tota vestra confligendum puto. Laboro autem non sine causa; Piso, familiaris noster, et alia multa et hoc loco Stoicos irridebat: Quid enim? Tollenda est atque extrahenda radicitus.

Quamquam non negatis nos intellegere quid sit voluptas, sed quid ille dicat. Aliam vero vim voluptatis esse, aliam nihil dolendi, nisi valde pertinax fueris, concedas necesse est. Maximas vero virtutes iacere omnis necesse est voluptate dominante. Sed eum qui audiebant, quoad poterant, defendebant sententiam suam. Sed ille, ut dixi, vitiose. Hoc est non modo cor non habere, sed ne palatum quidem. Nam illud vehementer repugnat, eundem beatum esse et multis malis oppressum.

Limitations

The Law of Diminishing Returns is based on a number of assumptions that are not always relevant to real-world situations. These include: 

  • No change in technology

  • A short period of impact

  • Consistent, homogeneous units

  • Measurement of product using tangible units. 

Each of these assumptions might be challenged in the real world. Technology is always progressing, the units of input are likely going to vary (hiring one person compared to another person will have different impacts) and even the questions of measurement will be more complex beyond the narrow assessment of weight or financial value. 

It relies on a static, predictable system which is rarely true or at least has clear limitations when applied to the complexity of reality.  

In Practice

Too Many Cooks. 

A useful example to explain this model is to consider a small food truck that sells doughnuts. If that truck has one cook, they might be able to produce 20 doughnuts every hour. Adding one more cook might increase that output to 40 doughnuts every hour. However, adding a third cook might only allow them to produce 45 doughnuts every hour because of the limited space and resources in the truck, and adding a fourth cook might not add any returns at all.

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Origins & Resources

The concept of Diminishing Returns has a rich and long history, being traced back to economists such as Adam Smith, Jacques Turgot, and Thomas Mathus. The earliest explicit references to this model were in relation to farming outputs and can be attributed to Thomas Malthus and David Ricardo.

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