Diminishing returns to capital are a consequence of firms' incentives to use each piece of capital as productively as possible and illustrate the

Question

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The principle of increasing opportunity costs explains how the more a firm invests in a certain factor, such as capital, the higher the opportunity cost of using that factor becomes. This is precisely what causes diminishing marginal returns to capital as firms become constrained by the limited productivity gains from each additional unit of investment. The other principles listed are not directly related to this concept.

Diminishing Returns to Capital Are a Consequence of Firms' Incentives