The correct answer is C. Law of diminishing returns.
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, a situation that is referred to as negative returns, though in practice this is often the case.
The law of diminishing returns is a fundamental concept in economics and has been used to explain a wide range of phenomena, from the productivity of workers to the profitability of businesses. It is also a key concept in microeconomics, where it is used to analyze the behavior of firms and consumers.
The law of diminishing returns can be explained in terms of the concept of marginal product. Marginal product is the additional output that is produced when one additional unit of a factor of production is added. In the short run, the marginal product of a factor of production will typically increase as more of that factor is added. However, at some point, the marginal product will begin to decline. This is because as more of a factor is added, it becomes increasingly difficult to find ways to use that factor more productively.
The law of diminishing returns has a number of important implications. First, it implies that there is an optimal level of production for any given firm or economy. Beyond this optimal level, further increases in production will lead to lower returns. Second, the law of diminishing returns implies that there is a trade-off between efficiency and equity. In order to produce more efficiently, firms may need to hire workers who are less skilled or who are paid less. This can lead to inequality, as some workers benefit from the increased production while others do not.
The law of diminishing returns is a powerful tool for understanding economic behavior. It can be used to explain a wide range of phenomena, from the productivity of workers to the profitability of businesses. The law of diminishing returns also has a number of important implications for economic policy.