Diminishing marginal productivity explains the impact of additional workers on production, especially in the short run, and can help assess the benefits of hiring more helpers for increased production efficiency.
Diminishing marginal productivity is a concept that explains why adding more workers may initially increase production but will eventually lead to a decrease in the marginal product of labor. This occurs due to the fixed capital in the short run, causing additional workers to have decreasing marginal returns.
Using the example provided, if the neighbor hires 3 helpers, the production may not increase three- or fourfold because of diminishing marginal productivity. With each additional helper, the marginal product of labor decreases, potentially leading to limited production gains.
Based on the concept of diminishing marginal productivity, it is advisable for the neighbor to carefully consider whether hiring three helpers will significantly boost production or if it may result in diminishing returns and inefficient resource allocation.
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