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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. Sin aliud quid voles, postea. Verba tu fingas et ea dicas, quae non sentias? Atqui reperies, inquit, in hoc quidem pertinacem; Tum ille: Ain tandem?

Quid, si etiam iucunda memoria est praeteritorum malorum? Satisne ergo pudori consulat, si quis sine teste libidini pareat? Nam, ut sint illa vendibiliora, haec uberiora certe sunt. Qui enim existimabit posse se miserum esse beatus non erit. Atque haec ita iustitiae propria sunt, ut sint virtutum reliquarum communia. Verba tu fingas et ea dicas, quae non sentias?

Nemo nostrum istius generis asotos iucunde putat vivere. Te ipsum, dignissimum maioribus tuis, voluptasne induxit, ut adolescentulus eriperes P. Rationis enim perfectio est virtus; Duo Reges: constructio interrete. Quam nemo umquam voluptatem appellavit, appellat; Egone non intellego, quid sit don Graece, Latine voluptas?

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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. Cur fortior sit, si illud, quod tute concedis, asperum et vix ferendum putabit? Quod dicit Epicurus etiam de voluptate, quae minime sint voluptates, eas obscurari saepe et obrui. Venit ad extremum; Duo Reges: constructio interrete. Alia quaedam dicent, credo, magna antiquorum esse peccata, quae ille veri investigandi cupidus nullo modo ferre potuerit. Est enim effectrix multarum et magnarum voluptatum.

Mihi vero, inquit, placet agi subtilius et, ut ipse dixisti, pressius. Igitur neque stultorum quisquam beatus neque sapientium non beatus. Tum, Quintus et Pomponius cum idem se velle dixissent, Piso exorsus est. Restinguet citius, si ardentem acceperit. Quid ergo attinet gloriose loqui, nisi constanter loquare? Unum est sine dolore esse, alterum cum voluptate. Aliud igitur esse censet gaudere, aliud non dolere. Quod si ita se habeat, non possit beatam praestare vitam sapientia. Nunc vides, quid faciat. Nos paucis ad haec additis finem faciamus aliquando; Miserum hominem! Si dolor summum malum est, dici aliter non potest.

Dolere malum est: in crucem qui agitur, beatus esse non potest. Hoc non est positum in nostra actione. Falli igitur possumus. Huic mori optimum esse propter desperationem sapientiae, illi propter spem vivere. De ingenio eius in his disputationibus, non de moribus quaeritur. Respondent extrema primis, media utrisque, omnia omnibus. Si sapiens, ne tum quidem miser, cum ab Oroete, praetore Darei, in crucem actus est. Quodsi vultum tibi, si incessum fingeres, quo gravior viderere, non esses tui similis; Nam si beatus umquam fuisset, beatam vitam usque ad illum a Cyro extructum rogum pertulisset.

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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