When we add a worker to the facility, each worker becomes less productive because
he or she works with a smaller piece of the facility:
More workers share the same machinery, equipment, and factory space. As we pack
more and more workers into the factory, total output increases, but at a decreasing
rate.
It’s important to emphasize that diminishing returns occurs because one of the inputs
to the production process is fixed.
When a firm can vary all its inputs, including the size of the production facility, the
principle of diminishing returns is not relevant.