Rarely do I learn something in my classes that can actually be applied to something in everyday life. One of these lessons I have had the "privilege" of experiencing first-hand on several different occasions. (You will see why I placed the word privilege in quotes later.)
As my die-hard readers know already, I decided to take some business courses this semester, since I needed electives to complete my degree. One of these is Microeconomics, and I have been surprised to find it fascinating! One of the principles we have learned lately is the law of diminishing marginal returns. The textbook definition, as I have recorded in my lecture notes, is "as more of a variable resource is added to a fixed resource, the margin will decrease, and even become negative." The margin to which I am referring is the marginal product, which is "how the total output of a firm changes with the addition of one more unit of the variable resource." I know that's a lot of jargon mumbo-jumbo nonsense, but please bear with me.
Let's look at the example to which I was referring at the beginning of this post. Every Sunday night after I get out of Mass, I proceed to the Subway in the student center here at Xavier. I order my sandwich and pay for it, and then am on my way back to my apartment. Usually this is a quick transaction that lasts only a few minutes. However, I began to notice that there were certain occasions where I was waiting a lot longer than usual. No, this was not due to an increased volume of customers. No, this was not due to a shortage of workers. In fact, the increased wait was due to a SURPLUS of workers! Now how does that make sense?
Actually, it makes quite a bit of sense, and the law of diminishing marginal returns helps explain that. With each increase of inputs, in this case an increase in labor, the marginal product will decrease. As I have witnessed, the more workers there are on any given night, the fewer sandwiches they can make in a given time period. This illustrates that law perfectly! The increased amount of workers have to be crammed into a tight space and must share responsibilities. The sharing of these simple responsibilities leads to redundancies and inefficiency. Also, having more employees leads to goofing off and inappropriate conversations when they should be working.
So you see, this Subway restaurant works best when there are only 2-3 employees behind the counter. On nights when there are four or more employees, the service suffers, and the customers end up waiting longer to get their food. I have pointed this out to other people on several occasions, and it is quite frustrating to watch the employees goof off and carry on personal conversations when I am hungry! Thankfully, though, these incidents have been less and less frequent lately, so my eating has not been adversely affected. (Not that it ever was, of course.)
Did any of that make sense? I tried to explain it as best I could, but the concept is a little bit challenging to explain. In reality, it is quite simple and makes complete sense. Isn't it great to apply what you learn in a classroom to the real world??? That's one thing that makes Economics a fascinating subject.
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5 comments:
Another example is the piling on of additional work to a person who already has a full plate. As the additional tasks are imposed there is less time to do the usual tasks that are still required. The usual tasks begin to suffer.
Amen to that. I rememer when I left Cordis Corp. they had to hand my work and job over to 3 people. I loved the job, but I didn't have time to eat or breath.
Is there a class that you do NOT find fascinating? You seem to enjoy all new knowledge and find multiple interesting applications.
As your grandparents point out there is a complementary law of under resourcing. Most successful businesses strive to find the crest between these two laws. A similar principle applies to product pricing. Too low reduces yield, too high reduces sales. Taxes are another example. Too low reduces needed resources, too high reduces taxable activities.
Unfortunately it seems many of our government representatives have never had the Microeconomics class that you have.
i admire the way you have broken down this "big" concept into simple language and example for any beginner to understand.
but one may wonder if a strict application of the law of DMR as you have exemplified would not mean more unemployment
Casmia Bello
A caterer pours two cups of rice in a sizable cooking pot and it boils well. She doubled the quantity of rice the next time in the same pot only to realize that the rice did not cook well!! This is diminishing returns
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