Question

A baker calculates that by spending $16 on labor and materials, she can bake 10 cakes a day. By spending $24, she can bake 12 cakes. By spending $36, she can bake 14 cakes. In terms of capital and labor, the baker has _____.

A. negative marginal returns
B. decreasing marginal returns
C. increasing marginal returns
D. constant marginal returns

Answer 1

B. Decreasing marginal returns

Answer 2

The correct answer is letter "B": decreasing marginal returns.

Step-by-step explanation:

Decreasing marginal returns are the cause of increasing input in the production of a given product in the short term while the rest of the variables keep constant. This law does not necessarily imply that the returns will be lowered but it is the most likely common scenario that ends taking place.