Production Theory

Discussion on the abstract for “Diminishing Marginal Returns and the Production of Education: An International Analysis,” by Douglas N. Harris (Education Economics, 2007).


According to Harris’ article, the Law of Diminishing Marginal Returns (DMR) may explain a wide range of findings within the educational research field. The author suggests that the concept of DMR may apply to the respective effects of class size and teacher education level on the “production” of education. According to the Law of DMR, this implies, for example, that the benefits of decreasing a class size will initially increase educational production (or learning) at an increasing rate; however, at some point a decrease in the number of students per class will begin to result in progressively less learning as a result of crowding-out effects.

Harris also indicates that, although the Law of DMR may apply in this context, educational data typically doesn’t conform to the requirements of a traditional DMR test. Within the article, Harris proposes a new DMR test and applies it to educational data from 36 countries. Harris further concludes that, in many cases within the education literature, the marginal effects of school inputs (like class size and teacher education) are negative, which makes the Law of DMR impossible to apply. However, Harris’ model does give some indication that the Law of DMR may apply in those cases when the marginal effects of school inputs are positive.

This article is relevant to our classroom discussion of production theory, because the Law of DMR explains the predictable pattern of a firm’s short-run output, in which an increase in the variable input yields progressively less output as a result of crowding out effects.


Education and success in the classroom is a product of the inputs that make up the entire educational experience.  Across the world education is of important value to everyone.  However, in certain parts of the world resources are more available than in other.  It is these resources that help to create the output of education.  When comparing the returns of the education in developed countries like U.S. to developing countries like African, South American, or Asian countries, the returns of the two is expected to be different.

Schools in the U.S. and other developed countries experience diminishing returns as a result of the already high levels of resources committed to education.  While increased inputs allow for advanced and high quality education, the developed nations have reached a point in their production output that each additional input does not generate the same level of return as the previous input.  It is a result from the years of continuous growth and development of education in these nations. 

However, looking at developing nations, the inputs for education only further increases the marginal returns.  The developing nations are still early enough in their output function that each unit produces higher return.  The developing countries have significant room for growth and development, which allows for this increasing marginal return.  Since so few resources have been committed to the education systems in these developing nations they have the opportunity to grow and expand.  As more resources are committed to education in these developing nations the marginal return is likely to start decreasing.  However, for the time being it is still early enough in the life cycle that each input will lead to a greater marginal return.

 Real World Application

Perhaps the most important concept from production theory is diminishing marginal returns. One way to better understand this idea is to consider a pizza restaurant.  The first worker at the restaurant is only able to produce two pizzas an hour. He must work in the kitchen while also handling the cash register and miscellaneous duties. Once a second worker is hired, they are able to produce five total pizzas together. This is a marginal increase of three pizzas. One worker is able to work in the kitchen while the other handles customers. When a third worker is hired the company is able to produce three more pizzas per hour. It is starting to get a little crowded in the kitchen, and the workers are now working slightly below their optimum efficiency. When a fourth worker is added only one more pizza per hour can be produced. Efficiency is becoming a serious issue and more space is needed. Theoretically, the diminishing marginal returns would continue in this scenario to the point where additional workers actually caused a decrease in pizzas produced per hour.

Posted by Sarah, Dan and Ted (Section 4)


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