When a firm has diminishing marginal returns:
A) its output is falling.
B) marginal product is falling but is likely to still be positive.
C) total product falls because marginal product is falling and positive.
D) marginal product is always negative.

Question

Quizplus · Accepted Answer

Diminishing marginal returns means that each additional unit of input produces less output than the previous unit. This leads to a decline in marginal product but it is likely to still be positive, meaning that the total output is still increasing but at a decreasing rate. Option A is incorrect because the firm's output is still increasing, just not as quickly. Option C is incorrect because total product only falls if marginal product is negative. Option D is incorrect because marginal product can still be positive when experiencing diminishing marginal returns.

When a Firm Has Diminishing Marginal Returns