Question

When total product continues to increase 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

Marginal Product is the defined as the change in total product resulting from one additional unit of a variable factor. For output to be maximized the marginal product should be 0. As if marginal product ≥ 0 it is profitable to increase production. If marginal product ≤ 0 it is profitable to decrease production. Due to the problems of overcrowding and chaos, the total product increases at a slower rate as a result of adding more workers, this is when the marginal product starts falling.