Question:
Assume that a firm uses only one variable input in its short run production process. If the firm is experiencing diminishing returns, which of the following is true as more of the variable input is used?
(1) Marginal cost will decrease at a constant rate.
(2) Marginal cost will decrease at a diminishing rate.
(3) Marginal cost will increase.
(4) Marginal product will increase at a constant rate.
(5) Marginal product will increase at a diminishing rate.
Correct Answer:
(3)
Answer Explanation:
The law of diminishing returns states that as more variable inputs are added, the Marginal Product (extra output per worker) eventually declines. Because each new worker adds fewer units to total output, the cost to produce each additional unit (Marginal Cost) must logically increase.
Topic: Production Year: 2018
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