A ﬁrm experiences diminishing returns to a factor because all factors cannot be increased in the short run.

Question

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Diminishing returns occur when increasing one factor of production while holding all others constant eventually leads to a smaller increase in output. This occurs because in the short run, some factors of production are fixed and cannot be increased, leading to a point at which adding more of the variable factor leads to smaller and smaller increases in output.

A ﬁRm Experiences Diminishing Returns to a Factor Because All