In my economics book it says this economic concept.''Of course,all this is common sense. As marginal physical product rises - or, to put it...

Okay, let's say you own a company and you are working by yourself. You make T-shirts. You've got way too much work to do and so you start to hire.

Let's say you hire your first worker and pay them $10 per hour. And let's say they produce 20 extra T-shirts. So your average cost is $.50 for each T-shirt.

So now you hire another person and that really makes your work efficient. You pay them $10 and they produce 40 extra T-shirts. Now you're paying $20 total for 60 T-shirts and your average cost is $.33 per t-shirt. See -- your costs are going down.

Now you hire one more worker but there really wasn't enough for that person to do. You hired one too many.  That person only contributes 10 more t-shirts.  Now you have 70 t-shirts at a cost of $30 and now each shirt is costin you $.43.  So your costs have gone up.

So as you hired, first your productivity went up.  More shirts were getting made per hire.  And your average costs went down.  Then you hired too many and they stopped being so productive.

The way I often teach this is by having students cut out paper cars.  I give one student 2 scissors, a stapler, paper, and car and wheel patterns.  They have to do all the steps and go slowly.  Then I let one more student help.  One cuts, the other staples.  But imagine when I let a fourth student work.  One cuts wheels, one cuts cars, one staples, and the fourth is worhtless.  Do you see how that works?