Final answer:
Diminishing marginal productivity occurs when the addition of workers leads to lesser increases in output, eventually causing a decrease in efficiency due to fixed capital such as machinery or workspace.
Step-by-step explanation:
The concept of diminishing marginal productivity is critical in understanding the behavior of production functions in the short run. It refers to a decrease in the additional output produced by each additional unit of labor or capital, after a certain point. This typically occurs when one factor of production, such as capital, is held constant while more units of another factor, such as labor, are added. In these conditions, the marginal product may increase initially as additional workers contribute to an increase in output. However, as more workers are added without an increase in capital, the benefits of additional labor diminish. This phenomenon can be likened to adding more typists to a single PC; once there's more than one typist, the production process becomes less efficient, leading to seriously diminishing marginal productivity.
This concept is closely related to the Law of Diminishing Marginal Product, which further explains that after reaching the point of maximum efficiency, adding more labor can eventually lead to a decrease in overall production due to overcrowding or inefficiencies. This pattern of production concurs with the characteristics of decreasing returns to scale, where an increase in input doesn't lead to a proportional increase in output.