Question

In the short run, when total product to increases at a diminishing rate, it is known as _____________.

• A. stage of negative returns
• B. stage of diminishing returns
• C. stage of increasing returns
• D. stage of constant returns

Answer 1

The correct option is B stage of diminishing returns

When total product increases at a diminishing rate it is know as stage of diminishing returns. This is because the marginal returns per unit of input employed is falling, however it is still beneficial to increase production as total product is still increasing. This stage lies between point A and point B in the figure.