The law of diminishing returns
When a firm keeps adding workers but cannot add more machinery, each extra worker eventually adds less output than the one before. This happens because the fixed input — the machinery — becomes a bottleneck.
Formula
Marginal Returns = ΔOutput ÷ ΔLabour
Real World
A small Pret A Manger branch can only seat 30 customers; adding a tenth barista means workers queue for the same two coffee machines, so each extra hire adds fewer drinks per hour than the one before.
Exam Focus
Stress it is a short-run law only — always state the fixed factor (e.g. capital) or you will lose evaluation marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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