Suppose that a firm produces hard candies using both machines and labor, and that its quantity of machines is currently fixed but it can vary the number of workers. As more workers are added to operate the machines, output increases. Is this a refutation of the law of diminishing marginal returns?
A)Yes, because the law definitely states that output will decrease as more workers are added.
B)No, because we must be observing output in the long run if the stated scenario is occurring.
C)Yes, because the only way that this could occur is if the number of machines being used is also increasing.
D)No, because it is entirely possible for output to increase even when the law is in operation.

Question

Quizplus · Accepted Answer

The law of diminishing marginal returns states that as more units of a variable input (like labor) are added to fixed amounts of other inputs (like machines), the additional output from each new unit of input will eventually decrease. This does not mean that total output decreases, but rather that the rate of increase in output will slow down. The scenario described does not refute this law; it simply illustrates the initial phase where output is still increasing with the addition of labor.

Suppose That a Firm Produces Hard Candies Using Both Machines