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What is the Law of Diminishing Returns?

The law of diminishing returns says that each time we do something to receive a benefit, the benefit will be less and less. The best way to think of this is by a simple example. If we are with a small child on a hot summer day and we pass an ice cream stand and buy the child an ice cream cone, it will taste wonderful. A short time later we pass another ice cream stand and buy the child another ice cream cone. This time the cone does not taste as good as the first one. If we continue passing ice cream stands and buying ice cream cones for the child, we will find that the taste of the ice cream gets less and less wonderful with each ice cream cone. Eventually the child will become sick of eating ice cream cones (and may become sick as well) and will not want another one. This is the law of diminishing returns.

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In the world of business there are many applications of the law of diminishing returns. When we make reductions in the scheduled completion date of a project, we receive large reductions at first for relatively small amounts of time, effort, and money. As we continue to reduce the schedule, we will receive smaller reductions in schedule time for the same amount of spent time, effort, and money.

If we buy a piece of maintenance equipment, the benefits received from buying the first piece of equipment are a certain amount. If we are happy with that piece of equipment and buy another piece of the same equipment, the benefits received from the second piece of equipment are less than the benefits received from the first piece of equipment.

If we decide to get married, we receive many benefits from the marriage. If we decide to get married to a second spouse, the benefits received are considerably less than the benefits received from the first marriage. In this case the benefits might be considerably less since in most states bigamy is illegal and we could end up in jail with no spouse at all.