The existence of fixed factors of production at a firm explains

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Fixed factors of production refer to those inputs that cannot be easily altered in the short run, such as plant size and equipment. As a firm uses more and more of a fixed factor, such as a factory, the productivity of the variable factors, such as labor or raw materials, eventually decreases due to crowding and other limitations. This phenomenon is known as the law of diminishing marginal returns.

The Existence of Fixed Factors of Production at a Firm