Examples
There is a factory which produces toys. When there are no workers in the factory, no toys are produced. When there is one worker in the factory, six toys are produced per hour. When there are two workers in the factory, eleven toys are produced per hour. There is a marginal product of labor of 5 when there are two workers in the factory compared to one. When the marginal product of labor is positive, this is called increasing marginal returns. However, as the number of workers increases, the marginal product of labor may not increase indefinitely. When not scaled properly, the marginal product of labor may go down when the number of employees goes up, creating a situation known as diminishing marginal returns. When the marginal product of labor becomes negative, it is known as negative marginal returns.
Read more about this topic: Marginal Product Of Labor
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