If a firm is experiencing diminishing marginal returns to labor,then which of the following statements is true?
A)The first workers the firm hired were better than the workers hired later on.
B)The firm is experiencing decreasing returns to scale.
C)The positive effect of specialization in production is being offset by the negative effect of crowding of inputs.
D)Output is decreasing with decreasing inputs.
E)The firm should buy more non-labor inputs.

Question

Quizplus · Accepted Answer

Diminishing marginal returns to labor occur when the marginal product of an additional unit of labor is less than the marginal product of the previous unit of labor. This can happen when there is crowding of inputs, which means that as more labor is employed, the workers start getting in each other's way, reducing their productivity. Therefore, the positive effect of specialization in production is being offset by the negative effect of crowding of inputs. Choices A and D are incorrect because they suggest that the quality of workers or the total output is decreasing, which is not necessarily the case with diminishing marginal returns to labor. Choice B is incorrect because it refers to a different concept of returns to scale, which measures the relationship between the scale of production and the level of output. Choice E is irrelevant as it does not address the issue of diminishing marginal returns to labor.

If a Firm Is Experiencing Diminishing Marginal Returns to Labor,then