Question

explain the concept of diminshing returns. give an example

Answer 1

Diminishing returns refers to the decrease in the marginal output of a production process as the amount of input starts increasing incrementally. We can take the example of a McD franchise. Suppose in a McD restaurant the employer tries to employ workers to work. As the employer starts employing workers, the marginal product initially increases but as more and more employees are employed, the marginal product eventually becomes constant and then decreases. This is same as the analogy "Too many cooks spoil the broth".