As output rises, typically, both marginal revenue product (MRP) and marginal physical product (MPP) fall due to the law of diminishing returns. This principle states that as more units of a variable input (like labor) are added to fixed inputs (like capital), the additional output produced by each new unit of the variable input eventually decreases.

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As Output Rises

Question 9

Multiple Choice

As output rises,

A) both marginal revenue product and marginal physical product rise.
B) both marginal revenue product and marginal physical product fall.
C) marginal revenue product rises and marginal physical product falls.
D) marginal revenue product rises and marginal physical product rises.

Correct Answer: