Asked by Jonathan Richardson on May 04, 2024
Verified
When a firm produces a small amount of output,the spreading effect:
A) is stronger than the diminishing returns effect.
B) is weaker than the diminishing returns effect.
C) and the diminishing returns effect are equal.
D) is zero.
Spreading Effect
refers to the phenomenon where the impact of a particular event, policy, or action extends or disperses across a wider area or population.
Diminishing Returns
An axiom indicating that beyond a certain level, additional investments in a given domain will not yield proportionally higher returns unless other variables are adjusted.
- Analyze the effects of spreading and diminishing returns on production costs.
Verified Answer
GM
Ghaleb MekdadMay 11, 2024
Final Answer :
A
Explanation :
When a firm produces a small amount of output, the marginal product of each additional unit of input is likely to be increasing. As a result, the spreading effect (increased output due to adding more inputs) is likely to be stronger than the diminishing returns effect (decreased output due to each additional input being less productive). Therefore, choice A is the best answer.
Learning Objectives
- Analyze the effects of spreading and diminishing returns on production costs.
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