CMA Foundation · Fundamentals of Business Economics and Management · Theory of Production
Which of the following is the most commonly cited reason for the operation of diminishing returns when more labour is added to a fixed quantity of land?
Diminishing returns arise because the fixed factor is overworked as more variable units are added, making the factor proportion less than optimal. The law assumes constant technology and input prices, so those are not the reasons.
- ALabour becomes more skilled with every additional worker
- BFixed factor is used too intensively, so the factor proportion becomes less optimalCorrect
- CPrices of inputs rise as more labour is hired
- DTechnology deteriorates over time
Explanation
As more variable units work on a fixed factor, the fixed factor gets overcrowded and the ratio of variable to fixed input moves beyond the optimum. Skill gains explain increasing returns at first, and price or technology changes are outside the law's assumptions.
Did you get it right without looking?
One question tells you little. A timed set on Theory of Production shows your real accuracy, how long you take and where you lose marks.
More Theory of Production questions
- Which statement about the relationship between average product (AP) and marginal product (MP) of a variable factor is correct?
- Which of the following correctly describes the reward to the factor of production called 'entrepreneur' in a Jaipur handicraft business?
- In the theory of production, which of the following is classified as a fixed factor in the short run for a bakery in Indore?
- A firm's production function is Q = 6L^0.5 K^0.5, where L is labour and K is capital. If both L and K are quadrupled, by what factor does ou…
- A Jaipur firm raises all inputs by 20% and its output rises by 30%. Which statement is correct?
- Which of the following is a diseconomy of scale that typically appears when a firm grows very large?