Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Opportunity cost decreases while marginal cost increases
B
Both opportunity cost and marginal cost remain constant
C
Opportunity cost increases while marginal cost decreases
D
Both opportunity cost and marginal cost increase
Understanding the Answer
Let's break down why this is correct
Answer
Diminishing returns happen when we increase the production of one good while keeping resources for other goods the same. As we produce more of one good, like cars, it becomes harder and more expensive to make each additional car because we have to take resources away from making other goods, like bicycles. This means that the opportunity cost, which is what we give up to make more of the first good, increases. For example, if we shift resources to produce more cars, we might have to give up making more bicycles, and the amount of bicycles we lose for each extra car we produce will grow larger. Therefore, as we focus more on one product, both the opportunity cost and marginal cost of production rise due to the limited resources available.
Detailed Explanation
When you make more of one good, you give up more of another good. Other options are incorrect because Some might think that as you produce more, you save on costs; It's a common mistake to think costs stay the same.
Key Concepts
Opportunity cost
Marginal cost
Diminishing returns
Topic
Production Possibilities and Price Effects
Difficulty
hard level question
Cognitive Level
understand
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