Final answer:
The firm is experiencing Diminishing marginal returns. This pattern occurs in the short run due to the presence of fixed factors of production but does not persist in the long run when firms can adjust all factors.
Step-by-step explanation:
When additional units of a variable factor of production add less and less to total output, given that all other factors of production are held constant, the firm is experiencing Diminishing marginal returns. This phenomenon is associated with the short run, where at least one factor of production is fixed. For example, in the scenario where more barbers are hired in a barber shop with limited space, the initial few additions may significantly increase productivity, but as each additional barber is hired, the increase in output per additional barber is reduced.
Eventually, the productivity gain from hiring more barbers results in diminishing returns since the space (a fixed factor) cannot be altered to accommodate the increasing number of barbers efficiently. In the long run, however, firms can adjust all inputs and choose the optimal capital stock to produce their desired level of output, meaning that diminishing marginal productivity, which is caused by fixed capital, does not persist in the long run.