Asked by Andrew Allen on Apr 24, 2024
Verified
When diminishing marginal returns starts occurring, the addition of successive units of a variable resource to a fixed resource will cause the firm's production to diminish.
Diminishing Marginal Returns
is an economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, begins to decrease.
Variable Resource
A resource whose quantity can change in the short run to increase or decrease production levels.
Fixed Resource
A resource whose quantity cannot easily be changed in the short term, such as land, buildings, or equipment.
- Identify circumstances where inputs in production result in reduced returns.
Verified Answer
MA
Muhammad Abukar7 days ago
Final Answer :
False
Explanation :
When diminishing marginal returns occur, the addition of successive units of a variable resource to a fixed resource causes the additional output (marginal product) from each new unit of the variable resource to decrease, not the firm's total production to diminish. Total production continues to increase but at a decreasing rate.
Learning Objectives
- Identify circumstances where inputs in production result in reduced returns.