Law Of Diminishing Marginal Productivity

This really should be called the law of eventual diminishing marginal productivity, because it states that initially, adding one more unit of an input may increase output, but the increase in output will continue to decrease and even turn negative, which means that eventually, adding more input will decrease output.

The initial benefit of adding units of labor comes from specialization and "division of labor", which is why a software engineer at a small startup will work on frontend, backend, and everything in between while a software engineer at a big company only works on a very limited part of the product.

Example:

In a bakery, hiring additional bakers allows some to work on making the batter, some to focus on baking cupcakes and bread and pastries, and some to focus on decorating and packaging. This division of labor increases productivity, because each worker can specialize in their field and be really efficient.

On the other hand, if the bakery continues to hire more bakers, toes will get stepped on as the kitchen gets more cramped, cakes might get knocked off the table, and egos might get hurt when Deborah the Decorator gets hired over Brenda the Baker.