The Ripple Effect of Increasing Workers without Capital Adjustments

What is the impact on output when Apple Computer increases its number of workers without increasing capital?

• A. Output increases at an increasing rate
• B. Output remains constant
• C. Output increases at a decreasing rate
• D. Output decreases

Answer: (C)

When Apple Computer increases its number of workers without increasing capital, the principle of diminishing returns applies. Initially, adding workers to a fixed amount of capital (e.g., machines, technology, workspace) can lead to a rise in output. As more labor is employed, each additional worker contributes to output, but because the capital remains constant, the additional contribution from each new worker will begin to decrease after a certain point. This phenomenon occurs because workers will have less capital to work with per person as more labor is added, limiting their productivity. Thus, while overall output does increase as the number of workers grows, the increase will not be proportional. Instead, the rate of increase in output slows down over time, which is why the correct answer is that output increases at a decreasing rate. While increasing workers could initially lead to faster output growth, the inability to match labor with an equivalent increase in capital means that the productivity of each additional worker diminishes, highlighting the relationship between labor and capital in the production process.

Have you ever thought about what happens when a company like Apple Computer adds more workers but doesn’t boost its tech or resources? It’s like inviting a bunch of friends over for a game night without getting a bigger table—at first, it’s fun, but soon enough, things get cramped. When workers are piled into a fixed setup, the principle of diminishing returns takes center stage.

Now, let’s break this down. When Apple ramps up its number of employees without altering the capital—think machines, workspace, or tech—the immediate effect is an uptick in output. Imagine your favorite coffee shop hiring extra baristas; initially, they whip up lattes faster for more customers. However, as they cram more staff into the same limited space, each additional barista won’t serve that extra latte as quickly. That’s the crux of diminishing returns.

So, what does happen to output? The answer is pretty straightforward: it increases at a decreasing rate. Initially, those new hires may be super productive, but as they’re crammed into a fixed workspace, they have fewer resources—less equipment, less room to move, and they end up tripping over each other (not literally, but you catch my drift).

This idea can seem counterintuitive; I mean, wouldn’t more hands on deck always lead to better results? Not quite. Each new worker brings less to the table as capital—the stuff they use to work—remains unchanged. Thus, while overall production grows, the additional output we get per worker shrinks over time.

To illustrate this further, let’s look at a scenario outside tech. Picture a farm. When you first add workers, they harvest crops faster. But if you keep adding workers without expanding the land or tools, soon, they’re standing around. Each extra worker isn’t as effective as the last—after all, how many farmers can you have in a single row of corn?

The real takeaway here is recognizing the balance between labor and capital. Companies must be strategic in hiring, ensuring they have the right tools and space to match their staffing levels. Otherwise, they face the diminishing returns phenomenon, where their investment in human resources doesn’t lead to the booming output they expected.

So, whether it’s tech giants like Apple or a local coffee shop, understanding how labor and capital interact is crucial. It’s not just about growing the team; it’s about creating an environment where every worker can thrive and contribute effectively. This connection between how many hands you have on deck and the tools at hand is super essential for anyone studying the intricacies of operations and performance management.

In conclusion, boosting your workforce can seem like a no-brainer, but without the necessary capital to back it up, you might just be running in place. Keep this in mind, and you’ll certainly be ahead of the game—especially when you’re preparing for the APM exam, where real-world applications matter just as much as textbook theories.