The law of diminishing returns operates in intensive cultivation because ___________.

the supply of labour is unlimited

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the supply of capital is fixed

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the supply of land is fixed

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Both (B) and (C)

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Solution

The correct option is C the supply of land is fixed
Since the supply of land is a fixed factor and can not be increased quickly the firm experiences rising average costs if it chooses to only increase the variable factors, such as labor as this causes an overcrowding of resources and this decreases productivity.

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