The decrease in the rate that output grows when we increase the usage of one factor, but hold the usage of all others constant is known as
A) decreasing returns to factor
B) decreasing returns to scale
C) elasticity of substitution

Question

Quizplus · Accepted Answer

Decreasing returns to factor refers to the decrease in the rate of output growth when we increase the usage of one factor while holding the usage of other factors constant. This occurs because the marginal product of the variable factor decreases as we reach the limits of other fixed factors such as land, capital, or labor. Decreasing returns to scale, on the other hand, refer to the decrease in the rate of output growth when we increase the usage of all factors of production proportionally. Elasticity of substitution refers to the degree to which one factor can be substituted for another without affecting the production process. Therefore, A) decreasing returns to factor is the best choice for the given definition.

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