Question

A home owner improves her house by adding a new fireplace each year for three years. She finds that the first fireplace has increased the value of her house by 150% of the cost of the fireplace. The second fireplace increased the value of the house by 100% of the cost. The third fireplace has had no effect on the value of the house. This is likely based on the principle of___________

Answer 1

The homeowner experienced diminishing returns on the value of her house as she added more fireplaces.

Step-by-step explanation:

The homeowner experienced different effects on the value of her house based on the fireplaces she added. The first fireplace increased the value by 150% of its cost, the second fireplace increased the value by 100% of its cost, and the third fireplace had no effect.

This scenario is likely based on the principle of diminishing returns. Diminishing returns occur when the marginal benefit of an additional unit of input decreases over time. In this case, the value added by each additional fireplace decreases until it has no effect on the value.