The law of diminishing marginal returns states A) that at some point, adding more of a fixed input to a given amount of variable inputs will cause the marginal product of the variable input to decline. B) that average total costs of production initially fall and at a later point starts to rise at a decreasing rate as output increases. C) that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline. D) that in the presence of a fixed factor, at some point the average product of labor starts to fall as more and more variable inputs are added.
The Correct Answer and Explanation is :
The correct answer is:
C) that at some point, adding more of a variable input to a given amount of a fixed input will cause the marginal product of the variable input to decline.
Explanation:
The Law of Diminishing Marginal Returns is a fundamental concept in economics, particularly in production theory. It states that when increasing quantities of a variable input (such as labor) are added to a fixed input (such as land or capital), the additional output (marginal product) generated from each additional unit of the variable input will eventually start to decrease.
This occurs because the fixed input imposes a constraint on the efficiency of the additional variable input. For example, if a farmer has a fixed amount of land and keeps adding more workers, at first, output will rise due to better labor division and specialization. However, as more and more workers are added, they will have less space and equipment to work efficiently, leading to congestion, inefficiency, and ultimately, declining marginal returns.
It is important to note that diminishing marginal returns does not mean negative returns immediately—it just means that the rate of increase in output slows down. Eventually, if too many workers are added, total output may even start to decline.
The law of diminishing marginal returns applies in the short run when at least one factor of production is fixed. It explains why businesses must optimize their labor and capital balance to achieve maximum efficiency.
This concept is different from economies of scale, which describes long-run cost behavior and refers to the cost advantages that businesses gain as they expand production.
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