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 increasing inputs.
E)The firm should buy more non-labor inputs.

Question

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 increasing inputs.
E)The firm should buy more non-labor inputs.

Quizplus · Accepted Answer

Diminishing marginal returns to labor occur when adding an additional unit of labor results in a smaller increase in output. This often happens when the positive effects of specialization are outweighed by the negative effects of overcrowding or limited capital.

If a Firm Is Experiencing Diminishing Marginal Returns to Labor