How about an example to illustrate increasing marginal returns? Suppose that Flex-Star Plaque Company produces the wildly popular Flex-Star Interactive Trophy Plaque (the wall plaque that broadcasts accomplishments to any who pass by). The Flex-Star factory, located on the outskirts of Shady Valley, is filled with the machinery, tools, and equipment needed to produce Interactive Trophy Plaques. All that is needed are the workers.

In the short run, the productive capital, the Flex-Star factory and related equipment, is fixed. This provides Flex-Star with a potentially perplexing situation. The plant itself cannot produce Interactive Trophy Plaques without equipment-operating workers.

• The first step is to add a worker, call him Dan. While Dan, by himself, can certainly produce more Interactive Trophy Plaques than an empty factory, Trophy-Plaque production requires a wide assortment of tasks that are bound to make Dan's all-encompassing job exceptionally difficult. Dan cuts and sands the wood, adds the fancy lettering, applies the varnish, polishes the metallic-looking plastic figurine, programs and installs the voice modulator, adds the mechanical vibrating flags, then packs it all up and ships it out. WHEW! Take a breather, Dan.

  Being the only worker in this factory means that Dan must do everything. Dan must be the wood cutter, the voice modulator programmer, the metallic-looking plastic figurine polisher, and the packer and shipper. Dan needs help.



• A second worker (Deanna) should be helpful. With two workers, Dan and Deanna can divide the assorted Trophy Plaque production tasks. Dan can do the wood cutting and Deanna can do the sanding. Dan can polish the metallic-looking plastic figurine and Deanna can program the voice modulator. By dividing these tasks, Dan and Deanna can both be more productive than Dan is alone. Doing everything, Dan might be able to fabricate 5 plaques an hour. But dividing the work, each concentrating on half of the tasks, Dan and Deanna can fabricate 15 plaques an hour.


• If a third worker is added, that would be Doug, then all three workers can further divide the tasks. Doing so means the capital in the Flex-Star factory is being used more effectively. And this means that the productivity of the workers rise. Together, Dan, Deanna, and Doug might be able to produce something like 30 plaques per hour.


• Adding a fourth (Debra), fifth (Donnie), and sixth (Duncan) workers, makes it possible to use the capital that comprises the Flex-Star factory even more effectively. And when the capital is used more effectively, the workers are more productive.