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Say there are three tasks in producing a product and the firm hires one worker for each task. After the third worker is hired the benefits of specialization diminish.

After the third worker is hired, output will increase total output but at a diminished rate. The theory is called diminishing marginal returns. As more and more labor is added to producing the product less and less output from each additional unit of labor will be produced.

When the third through the sixth workers are hired, the marginal product of labor is positive. Each new worker will add to a firms total output. However, the marginal product of labor will diminish as each worker is added to producing a product. Why for example would the third worker increase output by four units and the sixth worker used in producing the widget increase output by one unit?

Say there are three tasks in producing a product and the firm hires one worker for each task. After the third worker is hired the benefits of specialization diminish. After the third worker is hired output will increase total output but at a diminished rate. The theory is called diminishing marginal returns. As more and more labor is added to producing the product less and less output from each additional unit of labor will be produced.

The firm will produce diminished output as each unit of labor is increased because its workers will be working with scare capital resources. Capital is any man made resource that is used to produce other goods. In the production of a widget where there are three tasked used in producing it, each of the workers would be assigned to each task. The fourth, fifth and sixth workers would have to wait to use the capital, machines since only three workers can be assigned to a task at a time. So each additional unit of labor beyond the third would not greatly increase the speed of producing the widget but in contrast would diminish marginal returns. As more and more labor is added output will continue to fall and at some point could produce negative returns.