- Increasing, Diminishing, and Negative Marginal Product:
The textbook discusses the concept of diminishing marginal product. Review the PPT slides for chapter 13 and read about increasing and negative marginal product.
Think of a real-world example of increasing marginal product, diminishing (decreasing) marginal product, and negative marginal product. Here is an example from my personal experience in the restaurant business:
Professor Lagalo’s family owns a restaurant in Michigan. One corner of the kitchen has a salad station and a dessert station. Each station has its own piece of equipment (two pieces of capital total). During a dinner rush, it is very difficult for one worker to efficiently operate both food stations. Adding a second worker to this area of the kitchen increases marginal product substantially; the second worker adds more value to production (at the margin) than adding the first worker. Adding a third worker helps to assist the other two, but the marginal product (increase in total product) is lower because capital and floor space is fixed. Occasionally, management makes a mistake by adding a fourth person to the salad and dessert station. This is problematic for the first three workers because there is literally no room for the fourth worker. By adding a fourth worker, marginal product actually becomes negative and output is lower with four workers than with three. In this example, it only took a fourth worker to reach negative marginal returns. In a factory setting it would likely take a larger number of workers to reach negative marginal product, but the overall principles regarding marginal product are the same.
This example is very similar to the way Subway Restaurants are set up. The next time you are at a Subway ask an employee what is the most number of people that work behind the line. The answer will probably be 3-4. More is better in terms of inputs doesn’t apply when marginal product is negative because output becomes lower. Reality check: Would it be feasible for a Subway manger to schedule 10 employees to work during the same shift? Would food come out faster, or slower, with 10 workers behind the line?