Question

Which of the following best describes the relationship between diminishing marginal returns and marginal cost?a. If marginal returns are diminishing while output increases, marginal cost must be increasing.b. If marginal returns are diminishing while output increases, marginal cost must be decreasing.c. If marginal returns are diminishing while output increases, marginal cost can be either increasing or decreasing.d. Marginal returns diminish as output decreases, and thus marginal cost must increase.e. Marginal returns diminish as output increases, and thus marginal cost must decrease.

Answer 1

Answer: option(a) is correct.

Explanation:

Diminishing marginal returns also known as diminishing returns. It states that the additional input or factor of production that is used for the production of certain products and services, results in smaller increase in output. The output increases but at an decreasing rate. This is due to the efficiency or productivity of the additional factor of production. This will results in higher marginal cost because of the lower productivity from the additional input. So, marginal cost must be increasing.