Question

Which of the following is an example of how a firm can resolve the problem of diminishing marginal returns of labor?

-by hiring one additional worker

-by hiring several additional workers

-by decreasing its marginal returns

-by increasing its physical capital

Answer 1

By increasing its physical capital
the physical capital includes machinery and other manufacturing or business tool. With diminishing return of labor, there is already an excess of needed employees, who need to be marched with enough physical capital to harness and increase their output.