"Diminishing marginal returns" means that:
A) each additional unit of an input will decrease output.
B) each additional unit of an input will increase output,but by smaller and smaller amounts as inputs increase.
C) each additional unit of an input will increase output,but by larger and larger amounts as inputs increase.
D) the firm is maximizing profit.

Question

Quizplus · Accepted Answer

Diminishing marginal returns refers to a situation where adding more units of a variable input (like labor) to a fixed input (like capital) leads to increasingly smaller increases in output. This means that while adding more input may still increase output, the returns to each additional unit of input are diminishing, i.e., lower than the returns to the previous unit. Therefore, option B is correct. Option A is incorrect because it suggests that adding more input will always decrease output, which is not the case with diminishing marginal returns. Option C is also incorrect because it suggests increasing returns to scale, which is not the same as diminishing marginal returns. Option D is unrelated to the concept of marginal returns.

"Diminishing Marginal Returns" Means That