Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal costs increase, leading to decreased total revenue.
B
Marginal costs decrease, causing total revenue to remain constant.
C
Marginal costs remain constant, while total revenue decreases.
D
Marginal costs increase, but total revenue can still rise if prices are adjusted.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm experiences diminishing returns, it means that as it increases the amount of one input, like labor, the additional output produced from each new worker starts to decrease. This situation leads to higher marginal costs, which is the cost of producing one more unit of a good. For example, if a factory hires more workers but each new worker produces less than the previous ones, the cost of producing additional units rises. As marginal costs increase, it can impact total revenue because if the firm raises prices to cover these costs, it might sell fewer products. Therefore, while the firm might be producing more, its ability to earn revenue effectively can decline if costs rise too high.
Detailed Explanation
When a firm has diminishing returns, it means each extra unit costs more to produce. Other options are incorrect because This answer suggests that higher costs always lead to lower revenue; This option says costs go down, which is not true when diminishing returns happen.
Key Concepts
Marginal Costs
Total Revenue
Diminishing Returns
Topic
Marginal Costs and Total Revenue
Difficulty
medium level question
Cognitive Level
understand
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