In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation.Figure 14.2
In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-The marginal revenue product curve of a factor is negatively sloped because:
A)the additional revenue generated from an additional unit of a factor remains constant as more resources are hired.
B)the additional revenue generated from an additional unit of a factor declines as more resources are hired.
C)the additional revenue generated from an additional unit of a factor usually becomes zero as more resources are hired.
D)the additional revenue generated from an additional unit of a factor increases as more resources are hired.
E)the additional revenue generated from an additional unit of a factor doubles every time new resources are hired.

Question

In the following figure, the first panel shows a market situation prior to regulation and the second panel shows the effects of regulation.Figure 14.2
  In the figure,
D: Demand curve for automobiles
S 1 : Supply curve of automobiles prior to regulation
S 2 : Supply curve of automobiles after regulation
FG: Clean up cost per unit
-The marginal revenue product curve of a factor is negatively sloped because:
A)the additional revenue generated from an additional unit of a factor remains constant as more resources are hired. 
B)the additional revenue generated from an additional unit of a factor declines as more resources are hired. 
C)the additional revenue generated from an additional unit of a factor usually becomes zero as more resources are hired. 
D)the additional revenue generated from an additional unit of a factor increases as more resources are hired. 
E)the additional revenue generated from an additional unit of a factor doubles every time new resources are hired.

Quizplus · Accepted Answer

The marginal revenue product curve shows the additional revenue generated from an additional unit of a factor (such as labor) and generally declines as more resources are hired because of diminishing marginal returns. This means that each additional unit of a factor contributes less and less to output as more units are added, leading to a decrease in the marginal product and therefore the marginal revenue product.

In the Following Figure, the First Panel Shows a Market