The law of the decreasing return says that, since a certain moment, consecutive addition of elements of a variable resource (for example, work) to the steady fixed resource (for example, to the capital) gives reduction of extreme result. That is, the more there will be a number of the workers occupied with a certain work the more slowly there will be growth of the output.
The law of the decreasing return
The law of the decreasing return is called such law according to which over some established values of factors of production the extreme result at change of any of the variable values influencing the output will decrease as scales of involvement of this factor grow.
That is, if use of a certain factor of production extends and at the same time expenses of all other factors (fixed), then the volume of the limit product made thanks to this factor remain will decrease.
For example, if in the coal mine there is a crew from three miners and if to add one more to them, then the developed product will increase by one fourth and if to add several more, then development will decrease. And the reason for that – deterioration in working conditions. Many miners in the same square will only interfere with each other and will not be able qualitatively to work in narrowness. A key concept of this law - extreme labor productivity. That is, if two factors, then in case of increase of expenses of one of them are considered, its extreme performance will decrease. This law is applied only on a short interval of time and to one certain technology. The net effect of attraction of an accidental element (in this case – the worker) is shown in the size of profit and equals to a difference between the extreme value of work and the gain of the salary corresponding to it. From here conclusion of criterion of the best and optimum hiring: the company (enterprise) can increase the number of work to that degree, the extreme value of its more than the level of a rate of the salary so far. And the number of the taken places will be reduced when the extreme value of work becomes less in comparison with a salary rate.
Pareto principle
On the basis of the law of the decreasing return the Pareto principle which is called still the rule "80/20" was output. Its essence is that 20% of efforts equal 80% of all result. The example of this principle can be seen in the following. If to drop in a grass of 100 coins of equal size, then the first 80 will be quite easily and quickly. And here search of each following coin will take away much more forces and time, and the number of the spent efforts will increase with each new coin. And at some point the expense of time and forces on search of one of coins will significantly exceed its cost. Therefore it is important to be able to stop search in time. That is to stop work.