Diminishing Returns
The law of diminishing returns is a classic economic rule-of-thumb, often used in production theory. Similar to the Pareto principle, and exhibiting goal-seeking behaviour, the law of diminishing returns tells us that as you add more resources to a project, the per unit improvement of the additions becomes smaller and smaller, to the point where it could actually have a negative effect.
Example applications
Consider the number of workers in a production line. As you add more workers, performance will improve, up to a point. As more workers are added, the idle time increases, and the per-unit value of the worker goes down.
Similarly, you have probably experienced a situation where you have spent a small amount of time on an assignment, and have done OK, but in order to do better you might have to spend 3-4 times that amount of time.
Steps
To establish a graph that describes diminishing returns, you will need to establish two variables of interest, such as ‘time spent on an assignment’ and ‘marks earned’, or ‘cost of wages’ and ‘production value’.
Key concepts
- an overview of the law of diminishing returns
- an example that demonstrates the law, preferably an engineering example
- advice to the student engineer on how to optimise performance, given an understanding of the law of diminishing returns.
Core resources
- Kossiakoff, A. Sweet, W., Seymour, S, and Biemer, S., 2011 Systems engineering principles and practice (particularly pages 28-30)
Similar concepts…
The law of diminishing returns exhibits goal-seeking behaviour; it is a balancing feedback system. There are also parallels to the Pareto principle, in that the majority of return is achieved with the critical few.