Diminishing returns means that

Question

Quizplus · Accepted Answer

Diminishing returns refers to the idea that adding more of a certain input (such as labour) to a production process will result in successively smaller increases in output (such as real GDP). Option A is incorrect because the real wage rate may not necessarily decrease when hiring more labour. Option C is incorrect because it suggests that the amount of labour needed to produce each unit of output decreases, which is not necessarily the case in the context of diminishing returns. Option D is incorrect because it suggests that adding more labour will result in more output, which is the opposite of diminishing returns. Option E is also incorrect because it suggests that hiring more labour leads to a decrease in real GDP, which is true only if we go beyond the point of diminishing returns.

Diminishing Returns Means That