A firm produces its product using both capital and labor. When it does not change its capital usage, but doubles its labor input, its output increases by less than 50%. Which of the following is the most likely explanation of this finding?
A) the principle of opportunity cost
B) the spillover principle
C) the principle of diminishing returns
D) the marginal principle

Question

Quizplus · Accepted Answer

The principle of diminishing returns occurs when increasing one input while holding all other inputs constant will eventually result in smaller increases in output. This is the most likely explanation for the finding that doubling labor input did not result in a 50% increase in output, indicating that the production function exhibits diminishing marginal returns to labor.

A Firm Produces Its Product Using Both Capital and Labor