The marginal revenue product of an input in a competitive market decreases as a firm increases the quantity of the input employed because of the
A) law of diminishing returns.
B) law of diminishing marginal utility.
C) homogeneity of the product.
D) free mobility of resources.

Question

Quizplus · Accepted Answer

The law of diminishing returns states that as increasing amounts of a variable input are added to a fixed input, the marginal product (and thus the marginal revenue product in a competitive market) will eventually decrease. This is due to a limited amount of fixed inputs and the fact that additional variable inputs become less productive as more are added.

The Marginal Revenue Product of an Input in a Competitive