Laws and Efficiencies and Theories of Diminishing Returns

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Author: Lance Winslow

Article source: http://www.askfinancing.com/. Used with author's permission.

The basis of diminishing return discussions surround such simple notions; that when you have a very fast aircraft, you also have coefficients of drag issues. When you are building a quarter mile car and want to go faster you must realize that for every tenth of a second you need to lose 100 lbs., but to go faster you also need more power, thus the problem in Einstein's theory of the threshold of speed being that of the speed of light. In aviation there is a hyperbolic curve with coefficients of drag that makes aircraft design nearly obsolete when dealing within the boundaries of the atmosphere with the relationships of time, speed and distance equations.

Some thoughts on the streamlining of service vehicles placed on a grid system of distance, point of origin and return, rings of service area, GPS and ESRI tracking and coding are discussed in my essay on Grid Marketing which is available on this site.

In the case of a refuse, trash or garbage company or even a police department that gets calls to pick up the trash in our society we see the need for efficiencies, but also the theories of diminishing returns on the implemented efficiencies. The problem being that you need X amount of drivers, vehicles and infrastructure to pick up X amount of garbage. Once the best optimum is reached there is no way to increase production or in this case collection.

When looking at companies to invest in one needs to look at the infrastructures and equipment in place and the theory of diminishing returns. Can the company continue to have exponential gains without new customers thru efficiency alone? And if one of the market drivers of stock and shareholders equity is from increased ROI, then there comes a time when you can no longer redline your equipment any further. Think on this concept.