49 - Solows Surprise 49 But increasing machines per worker...

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Solow’s Surprise 49 But increasing machines per worker immediately runs into prob- lems. As we increase machines per worker, eventually each worker will be using more than one machine at once, dashing madly from one machine to another, like Charlie Chaplin in the movie Modern Times. It’s hard to believe that anything good will happen to pro- duction from giving one more machine to a worker who already has eight of them. This is diminishing returns. Diminishing returns has a simple and unavoidable logic: increas- ing one ingredient of production relative to another ingredient indef- initely cannot increase production indefinitely. When you increase machines relative to workers, the return to each additional machine will get lower and lower. To see diminishing returns in action, suppose for a moment that one ingredient is fixed, and you try to increase the other one. The Flour Next Time Today I am making my kids’ favorite breakfast food, pancakes. My pancake recipe calls for one cup milk and two
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This note was uploaded on 10/13/2008 for the course ECON 204 taught by Professor Cabal during the Spring '08 term at Williams.

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