Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It suggests increasing production will always yield higher profits.
B
It indicates that adding more resources will eventually lead to smaller increases in output.
C
It implies that production should cease when marginal costs exceed marginal benefits.
D
It means that optimal decision-making requires constant increases in input.
Understanding the Answer
Let's break down why this is correct
Answer
In marginal analysis, we look at the additional benefits and costs of producing one more unit of a good or service. The concept of diminishing returns means that as we keep adding more resources, like workers or machines, the extra output we get from each new addition will eventually decrease. For example, if a factory hires one more worker, production might increase a lot at first, but hiring even more workers will lead to smaller increases because the workspace becomes crowded. This understanding helps businesses decide the best number of resources to use; they want to keep producing as long as the extra benefits exceed the extra costs. Therefore, recognizing diminishing returns helps companies make smarter choices about how much to produce for maximum profit.
Detailed Explanation
Diminishing returns mean that as you add more resources, like workers or machines, each extra unit produces less than before. Other options are incorrect because Some might think that more production always means more profit; It's a common mistake to think production should stop when costs are higher than benefits.
Key Concepts
diminishing returns
optimal decision-making
Topic
Understanding Marginal Analysis
Difficulty
medium level question
Cognitive Level
understand
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