Diminishing marginal returns occur when:
A)units of a variable input are added to a fixed input and total product falls.
B)units of a variable input are added to a fixed input and marginal product falls.
C)the size of the plant is increased in the long run.
D)the quantity of the fixed input is increased and returns to the variable input fall.

Question

Quizplus · Accepted Answer

Diminishing marginal returns occur when additional units of a variable input, such as labor or capital, are added to a fixed input, such as land or machinery, and the marginal product of that variable input decreases. This means that each additional unit of the variable input will generate less output than the previous unit, leading to a decline in the overall productivity of the production process. Option A is incorrect because total product may still increase with diminishing marginal returns, but at a decreasing rate. Option C is unrelated to the concept of marginal returns, as it refers to the long-run adjustment of the size of the production facility. Option D is also incorrect because while increasing the quantity of fixed inputs can eventually lead to diminishing returns to scale, it does not cause diminishing marginal returns in the short run.

Diminishing Marginal Returns Occur When