Question

What concept implies that a firm's marginal revenue product curve for labour will slope downward in the short run?

• A. Diminishing marginal returns
• B. The law of supply
• C. The law of decreasing cost
• D. The price equalization principle

Answer 1

The correct option is A Diminishing marginal returns

In short run, only the application of variable factors can be influenced in the business. Therefore, when marginal revenue curve slopes downward it implies that diminishing returns to the variable factor has entered and for every successive unit of production the marginal returns/output are decreasing which is yielding less revenue.