Increasing Marginal Returns

Increasing marginal returns (IMR) is a term used in economics to describe a situation in which the additional production of a good or service results in a proportionally increasing return. This concept demonstrates diminishing returns which begins to set in at some level of production. This means that the average output per unit of labor quickly starts to drop when more workers are added and labor hours are increased.The theory of increasing marginal returns states that as production increases, it may become necessary to increase the number of inputs in order to maintain a proportionately increasing rate of return. When analyzing production, this concept can be used to determine how input costs and output unit costs compare in order to maximize profits.