When an additional unit of a variable factor of production adds less to total product than the previous unit, the firm must be experiencing:
A) increasing returns.
B) diminishing marginal returns.
C) diminishing average returns.
D) both B and C.

Question

Quizplus · Accepted Answer

Diminishing marginal returns occur when adding an additional unit of a variable factor of production results in a smaller increase in output than the previous unit added. This concept does not necessarily imply a change in average returns, which is a separate concept.

When an Additional Unit of a Variable Factor of Production