Diminishing Returns Law - Basics, Stages, and Effect on Your Life

Darryl Bachmeier
May 22, 2019
Success


Diminishing returns law is something you can be very familiar with or something you have no idea even exist. Usually, people who are studying or have studied economics are familiar with the term. An interesting fact is that this law applies to businesses and also to life. We will explain it and give you a complete insight into the diminishing return law.

What is diminishing returns law?

Diminishing returns law is mostly present in economics, but can be seen in life as well. It means that the results won’t advance equally as the effort you invest. With better results, you need to invest more energy into the same process. A more complex definition states that if you increase just one factor (let’s say input) while all other factors remain the same, your result will start to decrease.

The best example is when losing weight. You may know that losing 30 pounds, from 300 to 270 pounds is generally easy. But, losing 30 pounds when your weight is 150 pounds is far more complex. The situation is the same if you want to lose another 30 pounds while you are at 270 pounds. The reason lies in your muscles. They are stronger and you need more exercise to achieve the same outcome. The same example can be seen in businesses. Keep in mind that using the same routine will still provide results, but at a lower rate and not as much as at the beginning. Stages of diminishing returns law

Diminishing returns law has 3 specific stages that need to be explained. These will give you a much better idea about the law and what it represents. We will try to keep things simple and easy to comprehend.

Better returns

At first, if you increase one factor, you will increase production. In life, this means you will get better results. Keeping all the factors the same isn’t recommended in life nor in business. It means that you can only expect the same results for a short period of time. In other words, increasing one factor is beneficial and provides a better outcome.

Diminishing returns

This is a crucial stage. It simply means that increasing one factor will result in a diminishing result. You have reached the maximum value and from there you can only expect a decrease in production or expect poor results. Don’t forget that this applies when only one factor is changed while all the others remain the same.

Bad returns

Negative or bad returns is the last stage. You always should avoid this stage and prevent it as much as you can. In this case scenario, it states that you do not get the effort you were hoping for but instead you can a negative output. In business, this means you are getting less while investing more. An ideal recipe for bankruptcy.

Diminishing returns should be considered as a crucial step and can actually help you. At that moment you can see the higher input and a lower output meaning something has to change. You should change more factors in order to avoid negative returns which are really bad.

Diminishing returns in life

Yes, diminishing returns can be seen in life as well. As a matter of fact, it affects several, very important parts of life and can have a huge, negative effect. There are 3 examples we can see.

Everyday life

Here we can see the simplest form of diminishing returns law. If you are spending more hours playing video games and surfing social media than you should, you are at the stage we are discussing right now. The next example is when we sleep longer than we should. Keep in mind that a person needs 8-10 hours of sleep per night, not more.

Love life

Diminishing returns law can be seen if you spend too much time with a partner or with a friend. This will have a negative effect on your life goals and plans. The next example is when you spend too much time with people so that your life starts to suffer. It can be transferred to a job, studying, or anything else.

Work

If you are spending additional hours at work but the outcome is the same or you work more and still remain at the same place, you are at the diminishing returns stage. The situation is the same if the extra hours give you lower quality output. If that happens, you may want to consider a career change or a promotion.

The final word

Diminishing returns can be a complicated term at first, but once you take a look at the examples we have covered here, you can understand it completely. It is a crucial point in any business and in life. Once you reach it, you must increase several factors in order to get the increased output. Changing just one factor will cause negative returns!

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