For a perfectly competitive industry, diminishing marginal returns
A) occur only in the short run.
B) occur only in the long run.
C) occur in both the short run and in the long run.
D) Diminishing marginal returns do not occur in perfectly competitive industries.

Question

Quizplus · Accepted Answer

Diminishing marginal returns occur in the short run because, in the short run, at least one factor of production is fixed. As more units of a variable input (like labor) are added to a fixed input (like capital), the additional output produced by each additional unit of the variable input eventually decreases. This concept does not directly apply to the long run, where all factors of production can be varied.

For a Perfectly Competitive Industry, Diminishing Marginal Returns