Explain the law of diminishing marginal returns

History[ edit ] The concept of marginal utility grew out of attempts by economists to explain the determination of price. Diamonds are priced higher than water because their marginal utility is higher than water.

Explain the law of diminishing marginal returns

Therefore, the first unit of consumption for any product is typically highest, with every unit of consumption to follow holding less and less utility. Consumers handle the law of diminishing marginal utility by consuming numerous quantities of numerous goods. As the utility of a product decreases as its consumption increases, consumers are willing to pay smaller dollar amounts for more of the product.

After doing so, the individual consumes the first slice of pizza and gains a certain positive utility from eating the food.

Explain the law of diminishing marginal returns

Because the individual was hungry and this is the first food she consumed, the first slice of pizza has a high benefit. The third slice, as before, holds even less utility as the individual is now not hungry anymore.

In fact, the fourth slice of pizza has experienced a diminished marginal utility as well, as it is difficult to be consumed because the individual experiences discomfort upon being full from food.

Explain the law of diminishing marginal returns

Finally, the fifth slice of pizza cannot even be consumed. The individual is so full from the first four slices that consuming the last slice of pizza results in negative utility. The five slices of pizza demonstrate the decreasing utility that is experienced upon the consumption of any good.

In a business application, a company may benefit from having three accountants on its staff. However, if there is no need for another accountant, hiring a fourth accountant results in a diminished utility, as little benefit is gained from the new hire.The Law Of Diminishing Marginal Utility states that all else equal as consumption increases the marginal utility derived from each additional unit declines.

Box and Cox () developed the transformation. Estimation of any Box-Cox parameters is by maximum likelihood.

Box and Cox () offered an example in which the data had the form of survival times but the underlying biological structure was of hazard rates, and the transformation identified this. Not only is the Institute meeting a felt need by students but it has also achieved recognition by employers, many of whom sponsor their employees as students; and by the colleges, where the Institute’s examinations have been incorporated into business studies training programmes as a first step towards a more advanced qualification.

Nov 12,  · I explain the idea of fixed resources and the law of diminishing marginal returns. I also discuss how to calculate marginal product and identify the three st.

Law of diminishing marginal returns explained Assume the wage rate is £10, then an extra worker costs £ The Marginal Cost (MC) of a sandwich will be the cost of the worker divided by the number of extra sandwiches that are produced. In economics, diminishing returns is the decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant.

Glossary of research economics