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The law of diminishing marginal returns

The law of diminishing marginal returns states that

a. the marginal product of labor declines as all inputs are increased.
b. production functions exhibit decreasing returns to scale.
c. the marginal product of labor returns as more capital is used.
d. the marginal product of a factor eventually diminishes as more of the input is used, holding other inputs fixed.
e. the marginal product of a factor always diminishes as more of the input is used, holding other inputs fixed.

Meteor Tie Company produces ties from fabric according to Q = 10 + 4F - 1/3F3. If fabric is free and ties sell for $20, what is Meteor's optimal usage of fabric?

a. 0
b. 2
c. 4
d. 6
e. 8

Happiness can be produced with wine and roses according to Q = W½R¼. If wine costs $20 and roses cost $60, the happiness maximizing combination of wine and roses costing $360 in toto is

a. W = 18 and R = 0.
b. W = 15 and R = 1.
c. W = 12 and R = 2.
d. W = 9 and R = 3.
e. W = 6 and R = 4.

Increasing returns to scale

a. occur only where marginal returns are increasing.
b. cannot occur if all inputs have diminishing returns.
c. imply imperfect capital market returns.
d. result from just-in-time production.
e. are consistent with diminishing marginal returns everywhere.

Solution Preview

The law of diminishing marginal returns states that
d. the marginal product of a factor eventually diminishes as more of the input is used, holding other inputs fixed.

Meteor Tie Company produces ties from fabric according to Q ...

Solution Summary

The law of diminishing marginal returns is exemplified.

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