At the output rate at which diminishing marginal product begins, a firm will experience
A) constant average total costs.
B) increasing average fixed costs.
C) increasing marginal costs.
D) decreasing average variable costs.

Question

Quizplus · Accepted Answer

When marginal product begins to decline, it means that each additional unit of input is producing less output than the previous unit. This leads to an increase in marginal cost (the additional cost of producing each unit) as more and more input must be used to produce the same amount of output. While average total costs may remain constant at this stage, average fixed costs will tend to decrease (due to spreading fixed costs over a larger quantity of output) and average variable costs will tend to increase (due to the increase in marginal cost). Therefore, the best choice is C - increasing marginal costs.

At the Output Rate at Which Diminishing Marginal Product Begins