Multiple Choice
What is the production function? The production function is the relationship between:
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10. The Costs of Production
The Production Function and Diminishing Returns
Multiple Choice
In microeconomics, what does the law of diminishing marginal returns state about output when a firm increases one input while holding other inputs fixed (in the short run)?
A
Beyond some point, adding additional units of a variable input to fixed inputs causes the marginal product of the variable input to decline.
B
When a firm increases a variable input, total product must eventually fall below zero.
C
If the price of an input rises, firms will use less of that input and produce less output.
D
As all inputs are increased proportionally, output increases by a less than proportional amount.
Verified step by step guidance1
Understand that the law of diminishing marginal returns applies in the short run, where at least one input is fixed while others are variable.
Recognize that when a firm increases the quantity of a variable input (like labor) while keeping other inputs fixed (like capital), the additional output produced by each extra unit of the variable input is called the marginal product.
The law states that after some point, as more units of the variable input are added, the marginal product of that input will start to decline, meaning each additional unit adds less to total output than the previous one.
This happens because the fixed inputs limit the efficiency of the variable inputs, causing congestion or inefficiencies in production.
Note that the law does not imply total output will fall below zero or that proportional increases in all inputs lead to less than proportional output increases; those describe different concepts.
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