The Law of Diminishing Marginal Returns in a Toy Truck Factory

The law of diminishing returns is a simple, yet fundamental concept in economics. When the producer of a good wishes to expand its output, in the short-run it may do so by employing more workers or having its existing workers work longer hours. To acquire more capital and technology or to build new factories takes time and money, thus we say that in the short-run, a firm's plant size is fixed; the only variable resource is labor.

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