Question

Marginal product of an input declines as the quantity of the input increases (other things equal). This is an example of

Answer 1

When Marginal product of an input declines as the quantity of the input increases (other things equal) it is an example of diminishing returns to a factor. This is due a few reasons like

1)Optimum combination of factors:- Among the different combinations of variable and fixed factors there is an optimal combination that gives highest output, when this combination is exceeded then it leads to diminishing returns to a factor.

2)Imperfect substitutes:- It also occurs when fixed and variable factors are imperfect substitutes of each other or when there is a limit to which one factor can be substituted for another. Beyond the limit of this substitution it leads to diminishing returns to a factor.