Diminishing marginal returns:
A) imply decreasing returns to scale.
B) occur at all combinations of input usage.
C) occur only for labor.
D) are consistent with increasing returns to scale.
E) are inconsistent with increasing returns to scale.

Question

Quizplus · Accepted Answer

Diminishing marginal returns refer to the decrease in the marginal (incremental) output of a production process as the amount of a single factor of production is incrementally increased, holding all other factors constant. This concept does not necessarily imply overall decreasing returns to scale, which refers to a proportional increase in all inputs leading to a less than proportional increase in output. Diminishing marginal returns can occur within a production process that still exhibits increasing returns to scale if, for example, all inputs are increased proportionally and the output increases more than proportionally.

Diminishing Marginal Returns