Question

Which of the following is an example of the law of diminishing marginal​ returns? A. Holding capital​ constant, when the amount of labor increases from 5 to​ 6, output increases from 20 to 25. Then when labor increases from 6 to​ 7, output increases from 25 to 28. B. When capital and labor both increase by 20​ percent, output increases by only 15 percent. C. When labor increases by 20 percent and capital decreases by 15​ percent, output remains constant. D. Holding capital​ constant, when the amount of labor increases from 7 to​ 8, output increases from 36 to 42. Then when labor increases from 8 to​ 9, output increases from 42 to 50.

Answer 1

A. Holding capital​ constant, when the amount of labor increases from 5 to​ 6, output increases from 20 to 25. Then when labor increases from 6 to​ 7, output increases from 25 to 28

Step-by-step explanation:

Law of diminishing marginal revenue states that in a production process as more of an input is added it results in smaller increase in output over time.

As larger amount of input is added it will result in reduced per unit incremental returns.

When amount of labour increases from 5 to​ 6, output increases from 20 to 25. That means every additional unit of labour results in 5 units of output.

However when labor increases from 6 to​ 7, output increases from 25 to 28. This means that now a unit increase in labour has resulted in only 3 units increase in output.

This exemplifies the law of diminishing marginal revenue.