The law of diminishing returns refers to an eventual fall in

Productivity of factors of production
Total earing of the firm
Marginal product of the variable factor
None of the above

The correct answer is C. Marginal product of the variable factor.

The law of diminishing returns states that in all productive processes, adding more of one factor of production, while holding all others constant (ceteris paribus), will at some point yield lower incremental per-unit returns. The law of diminishing returns does not imply that adding more of a factor will always decrease the production, it implies that in all productive processes there exists some point at which the incremental per-unit return decreases.

Productivity of factors of production is the amount of output produced by a given amount of input. Total earnings of the firm is the total amount of money that a firm makes from its sales. None of these are directly related to the law of diminishing returns.

Marginal product of the variable factor is the additional output produced by adding one more unit of the variable factor, while holding all other factors constant. The law of diminishing returns states that marginal product will eventually decrease as more of the variable factor is added.

Exit mobile version