Asked by Autumn Lewis on Jul 15, 2024
Verified
As a result of a fire, a small business owner loses some of her computers and other equipment. If the property of diminishing returns applies to all factors of production, she should expect to see
A) an increase in the marginal productivity of her remaining capital and an increase in the marginal productivity of her labor.
B) an increase in the marginal productivity of her remaining capital and a decrease in the marginal productivity of her labor.
C) a decrease in the marginal productivity of her remaining capital and an increase in the marginal productivity of her labor.
D) a decrease in the marginal productivity of her remaining capital and a decrease in the marginal productivity of her labor.
Diminishing Returns
The principle that as an increasing amount of one factor of production is employed, holding all other factors constant, the additional output generated will eventually decrease.
Marginal Productivity
Marginal productivity refers to the extra output, income, or benefit derived from using an additional unit of a variable factor of production, holding all other inputs constant.
Factors Of Production
The resources used to produce goods and services, traditionally categorized into land, labor, capital, and entrepreneurship.
- Describe the effect that diminishing returns have on both the marginal productivity and the rental costs of production resources.
Verified Answer
MW
Megan WhitlocjJul 16, 2024
Final Answer :
B
Explanation :
The law of diminishing returns suggests that as one factor of production (in this case, capital in the form of computers and equipment) decreases, the marginal productivity of that factor increases because the remaining units are used more intensively. However, the marginal productivity of labor may decrease because there are fewer capital resources for each worker to use, potentially making their work less efficient.
Learning Objectives
- Describe the effect that diminishing returns have on both the marginal productivity and the rental costs of production resources.