Multiple choice

Diminishing marginal returns imply

  1. decreasing average variable costs

  2. decreasing marginal costs

  3. increasing marginal costs

  4. decreasing average fixed costs
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Diminishing marginal returns occur when adding more of a variable input (like labor) to fixed inputs (like capital) results in progressively smaller increases in output. This means each additional unit of input produces less extra output than the previous unit, so the cost of that extra output (marginal cost) rises. Option C correctly identifies this relationship. Options A and B incorrectly suggest costs decrease, when they actually increase at the margin.

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