Question

Diminishing marginal return implies __________.

• A. decreasing average variable costs
• B. decreasing marginal costs
• C. increasing marginal costs
• D. decreasing average fixed costs

Answer 1

The correct option is C increasing marginal costs

Initially there it too little of a variable input in comparison to the fixed input resulting in the underutilization of the fixed input. Thus as the quantity of variable input is initially increased, the fixed input is being better utilized, resulting in an increase in efficiency and thus the MC initially falls. As marginal returns are increasing. However as more variable input is added beyond a point this leads to overcrowding and inefficiencies and thus it leads to falling productivity which leads to rising MC.