How Increasing Returns Work For You:

Increasing Returns and the Network Effect.

O NO, who you gonna call? BSOD Busters!

Understanding the law of cause and effect is basis of rational thinking and the presupposition to additionally reasoned laws. Because i see the need of a computer repair specialist in my town i have now opened a business. The cause was the need for a computer repair then the effect, was my new venture BSOD Busters!. Once risen to the challenge i find myself quickly overwhelmed by the amount of work presented to me. Just as noted, I am a small business, i rely solely on myself for being on the phone for ordering parts, keeping up with accounting and many other tasks.
And I can work hard alone, but i want a larger business for my community. So i have decided to employ additional skilled laborers. After hiring my accountant/receptionist Molly, i have found my productivity increase as i can focus more on the nuts and bolts of repair work. Shortly there after i have found Molly and I are still swamped with work. I decide to hire on one gentleman that i believe will help grow my small business, and seems eager to grow with us.

Though i had gained a good bit more profit and time when i added Molly to the team, marginally, Dave has increased even more! After a short time, i quickly find that i can safely employ 2 more people and still see more than proportional returns. So after hiring Bill, and Eric i am still seeing over all increase in profit marginally per employee. I hire on one more madam named Janet. Janet works with the guys in ordering parts, and troubleshooting. However, though her addition has helped grow business, marginally it hasn't returned as much as each previous addition was. 

What we have seen is the Law of Increasing returns , which is closely coupled with the Law of Diminishing Returns. While i had hired four consecutive people, they each contributed more and more to the business. Because i am limited in the size of my shop there is a physical plateau i will reach in terms of the additional worth of one worker. At some point they start falling over each other and becoming idle. And that is where the law of Diminishing Returns takes effect. Janet is a great value to the team, but doesn't have the resources to do her job as well as she could. Thus she contributes less. 

However, i can see increasing returns better in the people i have been able to provide a service to. Each person i service finds has a great interaction, and gets their problem fixed. They leave a review on my website and when asked by friends may recommend me. I keep getting more business simply because of the good work my team does. So the larger web of good interactions we have the more people return and arrive at my place of business to get their computers fixed. The higher the returns I continue to receive.  It is a continuous network effect of positive feedback. 

A real world of example to this, would be a multi player game like World Of Warcraft. The more people that are on the game the more fun it is to play. Essentially the value of W.O.W. goes up as a product. However, there is diminishing returns in that when too many people get on the game it creates lag that slows down the game for everyone. Here the value goes down, this is to be avoided. In this instance, just as in my business', we find it is time to expand our capability of production, or in the case of W.O.W increase the size, and bandwidth of servers players are on in order to benefit from the law of Increasing Returns.