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CA Foundation · Business Economics · Theory of Production and Cost

In the short run, the law of diminishing marginal returns begins to operate when:

Diminishing marginal returns begin when marginal product starts falling after reaching its peak. At this stage total product still increases, but at a decreasing rate. Total product falling describes the later stage of negative marginal product, not the onset of diminishing returns.

  1. Atotal product starts to decline
  2. Bmarginal product starts to fall after reaching its maximumCorrect
  3. Caverage product reaches zero
  4. Dfixed inputs are increased in proportion

Explanation

Diminishing marginal returns set in at the point where MP begins to decline as more of the variable input is added to fixed inputs. TP still rises at that stage, so the first option is wrong. It describes negative returns, which come later.

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