The correct answer is: B. Marginal output of the variable factor starts decreasing.
The law of diminishing marginal returns states that in all productive processes, adding more of one input, while holding all others constant (ceteris paribus), will at some point yield lower incremental per-unit returns. The law of diminishing marginal returns does not imply that adding more of an input will always decrease the total production, a condition known as negative returns to scale. In fact, in some cases, the law of increasing marginal returns causes the total production to increase at an increasing rate. However, in all cases, adding more of an input beyond a certain point will cause the marginal production to decrease.
In the context of the question, the law of diminishing marginal returns begins to apply from the point where the marginal output of the variable factor starts decreasing. This is because, as more of the variable factor is added, the marginal output of that factor will eventually start to decrease. This is because the variable factor is becoming less and less productive as it is used in conjunction with the fixed factors.
Option A is incorrect because the total output of the variable factor may continue to increase even after the marginal output of the variable factor starts decreasing. This is because the total output of the variable factor is the sum of the marginal outputs of the variable factor. As long as the marginal output of the variable factor is positive, the total output of the variable factor will increase.
Option C is incorrect because the average output of the variable factor may continue to increase even after the marginal output of the variable factor starts decreasing. This is because the average output of the variable factor is the total output of the variable factor divided by the number of units of the variable factor. As long as the total output of the variable factor is increasing, the average output of the variable factor will increase.
Option D is incorrect because the law of diminishing marginal returns is a well-established economic principle that has been observed in many different industries.