please explain the law of diminishing returns
In: Economics
While it is called a “law” it is actually more just a general principle or expectation.
The “Law of Diminishing Returns” states that as you invest more resources into something the profits or benefits will reduce in proportion to the resources invested.
For example suppose you have a river which cannot be crossed. If you invest the minimum resources required to make a bridge then there is huge returns compared to the investment, since there is a big difference between being able to cross vs. not crossing at all. However if you invest more resources you can build a better bridge and allow more people to cross at once, or perhaps even allow vehicles to pass over. But the benefit of that improvement can be expected to provide less benefit per unit of resources spent than that initial investment.
Continuing on you can expect the benefit of transitioning from a $1 million bridge to a $10 million bridge to be significantly greater than transitioning from a $100 million bridge to a $110 million bridge. That is the general idea of the law of diminishing returns.
Latest Answers