If equal amounts of a variable input are sequentially added to the fixed input in a typical production function,
A)The increments to output will decrease first and then increase
B)The additions to output will be constant
C)Increments to output will increase indefinitely
D)Increments to output will first increase at an increasing rate and then at a decreasing rate

Question

Quizplus · Accepted Answer

This is known as the law of diminishing marginal returns, which states that as additional units of a variable input (such as labor) are added to a fixed input (such as capital), the increase in output initially increases at an increasing rate (due to specialization and division of labor), then increases at a decreasing rate (due to diminishing marginal returns), and eventually starts to decrease (due to negative marginal returns).

If Equal Amounts of a Variable Input Are Sequentially Added