Question

7. Diminishing returns to an input set in: A) when all inputs are fixed. B) when some inputs are fixed and some are variable. C) when all inputs are variable. D) only in the long run.

Answer 1

Answer: B) when some inputs are fixed and some are variable

Explanation: The law of diminishing returns refers to a very popular narrative in economics which explains how the return or yield generated from adding an additional unit of input starts to decrease at a certain period. The concept of diminishing returns involves that, in the production of a certain good or services, some of the inputs required such land, labor or equipment, when a certain input is increased such as land while the others such as equipment or labor is fixed, there is an increase in the output of production, However, as land continues to increase while the other factors are fixed, a decrease in the output begins to set in.