The situation pictured in Figure 6.4.3 above:
A) is one of increasing marginal returns to labor.
B) is one of increasing marginal returns to capital.
C) is not consistent with diminishing marginal product of labor or capital.
D) shows constant returns to scale.
E) shows diminishing marginal products of labor and capital.

Question

Quizplus · Accepted Answer

The situation described as showing diminishing marginal products of labor and capital implies that as more units of labor or capital are added, the additional output produced by each new unit decreases. This is a common occurrence in production processes where, after a certain point, adding more of a factor of production (like labor or capital) results in smaller increases in output, reflecting diminishing marginal productivity.

The Situation Pictured in Figure 6.4.3 Above