Question

The law of diminishing returns indicates that Multiple Choice 1. as extra units of a variable resource are added to a fixed resource, marginal product will decline beyond some point. 2. the demand for goods produced by purely competitive industries is downsloping. 3. because of economies and diseconomies of scale, a competitive firm's long-run average total cost curve will be U-shaped. 4. beyond some point, the extra utility derived from additional units of a product will yield the consumer smaller and smaller extra amounts of satisfaction.

Answer 1

Answer:

The law of diminishing returns in Production Economics,states that as more variable resources are employed in the production process by any firm or company,while keeping other resources constant or fixed,the marginal product will begin declining at some point in the production.Hence,the correct answer here would be option 1.

Explanation:

Law of diminishing returns basically advocates that as any firm or company increases the employment of any variable resource in the production process,while keeping the other factors/inputs of production fixed or constant,the additional productivity obtained from that particular resource employment decreases gradually at some point in the production process or in other words,its marginal product diminishes.In the initial phase of production,the company or firm usually experiences increasing returns to scale or higher productive efficiency from any variable resource but as it increasingly concentrates on employing only one particular variable keeping all other resources or factor inputs constant,it will gradually experience diminishing marginal product or return.At some point in production phase,every variable resource such as labor requires assistance from other supporting resources to maintain superior productivity and without additional or supplementary support it cannot function.For example,after some point in production,manual labor requires additional support such as machinery,equipment,computers,technical tools and other physical inputs to perform productively and efficiently.Therefore,without the fixed resources,variable resources are not able to function productively beyond some production level,thereby exhibiting diminishing marginal returns for the firm.