As a result of a fire, a small business owner loses some of her computers and other equipment. If the property of diminishing returns applies to all factors of production, she should expect to see
A)an increase in the marginal productivity of her remaining capital and an increase in the marginal productivity of her labor.
B)an increase in the marginal productivity of her remaining capital and a decrease in the marginal productivity of her labor.
C)a decrease in the marginal productivity of her remaining capital and an increase in the marginal productivity of her labor.
D)a decrease in the marginal productivity of her remaining capital and a decrease in the marginal productivity of her labor.

Question

Quizplus · Accepted Answer

The law of diminishing returns suggests that as one factor of production (in this case, capital in the form of computers and equipment) decreases, the marginal productivity of that factor increases because the remaining units are used more intensively. However, the marginal productivity of labor may decrease because there are fewer capital resources for each worker to use, potentially making their work less efficient.

As a Result of a Fire, a Small Business Owner