📚 Learning Guide
Diminishing Marginal Returns
easy

In the context of diminishing marginal returns, what happens to the marginal product of an input as more units of that input are added, assuming all other inputs remain constant?

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Choose the Best Answer

A

It increases indefinitely

B

It decreases after a certain point

C

It remains constant

D

It becomes negative

Understanding the Answer

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Answer

Diminishing marginal returns occur when adding more of a certain input, like labor, leads to smaller increases in output after a certain point. For example, imagine a farmer who has a fixed amount of land and starts hiring workers. At first, each new worker helps produce a lot more crops because they can work together efficiently. However, as more workers are added, they start getting in each other’s way, and each additional worker contributes less to the total harvest. This means that while the total output may still rise, the extra output from each new worker decreases, showing diminishing returns.

Detailed Explanation

As you add more of one input, like workers, the extra output they create starts to go down. Other options are incorrect because Some might think that adding more input always increases output; It's a common mistake to believe that adding more input keeps output the same.

Key Concepts

marginal product
Topic

Diminishing Marginal Returns

Difficulty

easy level question

Cognitive Level

understand

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