Question

Each of the following is a consequence of diminishing marginal product except one, which one?
    A. output increases at a decreasing rate as units of the variable input are added.
    B. marginal cost increases as the firm increases production.
    C. the firm’s total cost increases at an increasing rate as the firm increases production.
    D. output falls as units of the variable input are added.

Answer 1

Diminishing marginal product implies using an additional unit of vaiable input will increase the output but at the decreasing rate.

For example, inclusion of 5th unit of variable input increase the output by 10 units. And inclusion of 6th unit of variable input will increase the output by 8 units. It implies the diminishing marginal product of that variable input.

Diminishing marginal product leads to increase in marginal cost as the firm production increases.

The firm total cost increases at an increasing rate as the firm increases production due to diminishing marginal product.

Answer: Option (D)

i.e., output falls as units of the variable input are added.