Table 2.4
-The principle of diminishing returns does NOT apply to labor when all inputs are allowed to vary because
A) a firm can build an additional production facility so each worker's share of the facility doesn't necessarily decrease.
B) eventually the marginal product of labor will begin to increase again.
C) a firm can fire inefficient workers.
D) None of the above. Diminishing returns always apply.

Question

Table 2.4
-The principle of diminishing returns does NOT apply to labor when all inputs are allowed to vary because
A) a firm can build an additional production facility so each worker's share of the facility doesn't necessarily decrease. 
B) eventually the marginal product of labor will begin to increase again. 
C) a firm can fire inefficient workers. 
D) None of the above. Diminishing returns always apply.

Quizplus · Accepted Answer

The principle of diminishing returns primarily applies in the short run when at least one input (e.g., capital) is fixed. If a firm can vary all inputs, including building additional facilities, it can maintain or increase the marginal product of labor, thus the principle of diminishing returns does not necessarily apply in this context.

Table 2.4 -The Principle of Diminishing Returns Does NOT Apply to Labor