When you have diminishing marginal returns to labor,
A)variable costs remain constant as more output is produced.
B)variable costs fall as more output is produced.
C)variable costs rise as more output is produced.
D)fixed costs rise as more output is produced because you have to buy more equipment to compensate.

Question

Quizplus · Accepted Answer

When there are diminishing marginal returns to labor, it means that the additional output produced by each additional unit of labor is decreasing. As a result, variable costs such as wages, materials, and energy may increase due to the need for more input to produce the same level of output. This is why option C, variable costs rise as more output is produced, is the correct answer. Option A is incorrect because variable costs do not remain constant in this scenario, and option B is incorrect because variable costs do not decrease. Option D is incorrect because fixed costs are not affected by changes in output levels.

When You Have Diminishing Marginal Returns to Labor