Economics · Production and Cost
In a factory, the management observes that as more workers are hired, the total output increases initially but its rate of increase starts to decline after reaching a certain point. Which economic concept best explains this phenomenon?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Law of variable proportions under fixed variable input ratios
- 2Law of diminishing returns, where marginal productivity decreases after a certain level of variable input✓
- 3Increasing returns to scale, where output keeps increasing exponentially with more labor
- 4Constant returns to scale, where output increases proportionally with labor
Correct answer
Law of diminishing returns, where marginal productivity decreases after a certain level of variable input
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