Which of the following is an example of the law of diminishing marginal returns? A. Holding capital constant, when the amount of labor increases from 5 to 6, output increases from 20 to 25. Then when labor increases from 6 to 7, output increases from 25 to 28. B. When labor increases by 20 percent and capital decreases by 15 percent, output remains constant. C. When capital and labor both increase by 20 percent, output increases by only 15 percent.

Question

Neil Warren

Business

26 December, 00:10

Which of the following is an example of the law of diminishing marginal returns? A. Holding capital constant, when the amount of labor increases from 5 to 6, output increases from 20 to 25. Then when labor increases from 6 to 7, output increases from 25 to 28. B. When labor increases by 20 percent and capital decreases by 15 percent, output remains constant. C. When capital and labor both increase by 20 percent, output increases by only 15 percent.

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Answers (1)

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Lincoln Hammond · Answer 1

The correct answer is option A.

Explanation:

The law of diminishing returns states that as we go on employing more and more unit of input while keeping other inputs constant, the return from each additional unit of input will go on declining.

This means that the output produced from each additional unit of input will go on declining.

Here, as capital is kept constant and labor is increased by a unit, the output at first increases by 5 units from 20 to 25. But later when input is again increased by a unit, the output increase by only 3 units from 25 to 28.

This shows the law of diminishing marginal returns where the marginal returns from a unit of labor is declining.