The concept of diminishing marginal returns implies that
A)output cannot decrease as long as labor is substituted for capital
B)output decreases if either labor or capital is decreased
C)output increases but at a decreasing rate as the amount of labor is increased and the amount of capital remains fixed
D)if the capital stock is kept constant, output cannot increase even if more labor is available
E)output increases but only if the amounts of both labor and capital increase

Question

Quizplus · Accepted Answer

Diminishing marginal returns occurs when output increases but at a decreasing rate as the amount of one input factor (in this case, labor) is increased while keeping the other input factor (capital) constant. Therefore, option C is the correct choice. Option A is incorrect because output may decrease due to diminishing marginal returns. Option B is incorrect because output may not necessarily decrease if one of the input factors is decreased. Option D is incorrect because output can still increase, but at a decreasing rate, as long as the capital stock is kept constant. Option E is incorrect because output can still increase, but at a decreasing rate, even if only one input factor (capital or labor) is increased.

The Concept of Diminishing Marginal Returns Implies That