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Crowding of Fixed Input

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You are the owner of a restaurant, and currently you have only one waiter. While this keeps costs down, many of your customers go home because they are tired of waiting in line or waiting for their order. You hire four more waiters and waitresses, and you are now able to serve a dramatically higher number of customers. Seeing the huge productivity gains from hiring more staff, you then hire 20 more waiters and waitresses. However, you are not able to serve any more customers than you were able to when your staff size was only four. In fact, your restaurant has become overly crowded because there is not enough room in your restaurant for all of your staff. You are confused as to why hiring four more staff members increased your productivity, but hiring 20 more did not. What concept best describes what happened in this case? Explain your reasoning

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Solution Summary

The Solution addresses how the Law of Diminishing Returns acts to affect productivity.

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In this example, waiters are a variable input and the restaurant space is the fixed input. In the beginning, 1 waiter wasn't enough to take care of all ...

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