Final answer:
The statement about diminishing marginal product is false. Diminishing marginal product relates to the decrease in additional output as more input is used. Marginal cost is concerned with the additional cost of producing one more unit, and it determines the profitable level of output for a firm. Therefore, the given statement is false.
Step-by-step explanation:
The statement that diminishing marginal product exists when the total cost curve becomes horizontal as outputs increases is false. Diminishing marginal product refers to the general rule that as a firm employs more labor or other inputs, there comes a point where the amount of additional output (marginal product) produced declines. This concept is different from the behavior of the total cost curve. The total cost curve reflects the change in total costs associated with different levels of production, while diminishing marginal product pertains to the output generated from adding more of a variable input, like labor.
Diminishing marginal productivity implies that, holding other factors constant, the additional output gained from increasing the quantity of a variable input decreases over time. In contrast, marginal cost is defined as the change in total cost from producing a small amount of additional output and is not directly linked to the total cost curve becoming horizontal but rather to the cost of producing one more unit of output.
If the marginal cost exceeds marginal revenue, the firm will see a reduction in profits for every additional unit produced. The profit is maximized when the firm produces up to the point where marginal revenue (MR) equals marginal cost (MC). Therefore, the firm's supply behavior would adjust, and it may supply fewer units at every price level, shifting its individual supply curve to the left.