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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. Videmusne ut pueri ne verberibus quidem a contemplandis rebus perquirendisque deterreantur? Satis est ad hoc responsum. Multoque hoc melius nos veriusque quam Stoici. Nec hoc ille non vidit, sed verborum magnificentia est et gloria delectatus. Pauca mutat vel plura sane; Duo Reges: constructio interrete. Nos cum te, M. Nam illud vehementer repugnat, eundem beatum esse et multis malis oppressum. Illud dico, ea, quae dicat, praeclare inter se cohaerere. Non enim iam stirpis bonum quaeret, sed animalis. Sed non sunt in eo genere tantae commoditates corporis tamque productae temporibus tamque multae.

Et ille ridens: Video, inquit, quid agas; Recte, inquit, intellegis. Itaque haec cum illis est dissensio, cum Peripateticis nulla sane. Bork Quis istud possit, inquit, negare? Similiter sensus, cum accessit ad naturam, tuetur illam quidem, sed etiam se tuetur; Eaedem res maneant alio modo. Nam constitui virtus nullo modo potesti nisi ea, quae sunt prima naturae, ut ad summam pertinentia tenebit.

Quid enim tanto opus est instrumento in optimis artibus comparandis? An tu me de L. Ab his oratores, ab his imperatores ac rerum publicarum principes extiterunt. Itaque hic ipse iam pridem est reiectus; Ad corpus diceres pertinere-, sed ea, quae dixi, ad corpusne refers? Quae fere omnia appellantur uno ingenii nomine, easque virtutes qui habent, ingeniosi vocantur.

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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. Quo modo autem optimum, si bonum praeterea nullum est? Explanetur igitur. Equidem soleo etiam quod uno Graeci, si aliter non possum, idem pluribus verbis exponere. Potius inflammat, ut coercendi magis quam dedocendi esse videantur. Duo Reges: constructio interrete. Nihilne est in his rebus, quod dignum libero aut indignum esse ducamus? Quam si explicavisset, non tam haesitaret.

At ille non pertimuit saneque fidenter: Istis quidem ipsis verbis, inquit; Quid ei reliquisti, nisi te, quoquo modo loqueretur, intellegere, quid diceret? Quae cum dixisset paulumque institisset, Quid est? Quid vero? Haeret in salebra. Hanc ergo intuens debet institutum illud quasi signum absolvere. Quicquid porro animo cernimus, id omne oritur a sensibus;

An vero displicuit ea, quae tributa est animi virtutibus tanta praestantia? Sed ad bona praeterita redeamus.

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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