Showing posts with label Diminishing marginal product. Show all posts
Showing posts with label Diminishing marginal product. Show all posts

Saturday, June 12

How many garbagemen does it take to change a lightbulb?

Missoula, Montana is a bit of a weird place in terms of its economics.

The city seems to lack an understanding of the concept of "diminishing marginal product of labour." It's the idea that each additional worker a business takes on will be less productive than the last.

This makes sense. If I run a pizza shop, I'm not going to be able to do anything with zero workers. The benefit from my first worker is huge — I'll be able to produce pizzas. The benefit from my second worker is still pretty big — now I can do delivery instead of just take-out — but it's not as exciting as adding my first worker. My third worker will allow me to take on more business, but as I start adding a fourth and fifth worker, they'll probably contribute a little less since they'll mostly be standing around except when the shop is really busy. By the time I start adding a sixth and seventh worker, my pizza parlor is probably getting crowded and they might even slow things down.