Which Of The Following Best Expresses The Law Of Diminishing Returns?

Which Of The Following Best Expresses The Law Of Diminishing Returns
Which of the following best expresses the law of diminishing returns? As successive amounts of one resource (labor) are added to fixed amounts of other resources (capital), beyond some point the resulting extra or marginal output will decline.

What is the best example of the law of diminishing returns?

Key Takeaways –

The law of diminishing marginal returns states that adding an additional factor of production results in smaller increases in output. After some optimal level of capacity utilization, the addition of any larger amounts of a factor of production will inevitably yield decreased per-unit incremental returns.For example, if a factory employs workers to manufacture its products, at some point, the company will operate at an optimal level; with all other production factors constant, adding additional workers beyond this optimal level will result in less efficient operations.

Which of following statement best expresses the law of diminishing marginal returns?

Answer and Explanation: 1 – The correct option is: (b) The more a person consumes a product. The smaller becomes the additional utility that she receives as a result of consuming. See full answer below.

Which of the following best describes diminishing returns?

What statement best describes the principle of Diminishing Returns? With a fixed factor of production, beyond some point output will increase at a decreasing rate.

Which of the following explains the law of diminishing returns*?

Which of the following best describes the ‘Law of Diminishing Returns’? Beyond some point, output / total product per unit of the input employed must fall.

Which of the following is an example of diminishing marginal utility *?

What are some examples of diminishing marginal utility? – Food is a common example of a good with diminishing marginal utility. Think of an apple, for example. If you’re starving, an apple offers pretty high value. But the more apples you eat, the less hungry you become — Making each additional apple less valuable.

An experience, like a vacation, can also have diminishing marginal utility. If you’ve never taken a vacation before, then your first one may carry a lot of value or utility. The more frequently you travel, however, each trip may become less exciting. (The same logic could apply to sports games, concerts, plays, etc.) The utility of additional consumption can even turn negative.

Let’s say you’ve caught the flu and need antibiotics. Each dose of medicine helps you recover. If you continue taking the antibiotics past the recommended amount, each additional dose may have less and less benefit, and eventually cause adverse side effects, like destroying healthy bacteria.

Which best expresses the law of diminishing marginal utility Mcq?

1 Utility as defined in this chapter refers to the A) usefulness of a purchased product B) value of the money a consumer spends on a good C) satisfaction or pleasure from consuming a good D) extra income a consumer gets from buying a good at a lower price 2 Which best expresses the law of diminishing marginal utility? A) The more a person consumes of a product, the smaller becomes the utility that he receives from its consumption. B) The more a person consumes of a product, the smaller becomes the additional utility that she receives as a result of consuming an additional unit of the product. C) The less a person consumes of a product, the smaller becomes the utility that she receives from its consumption. D) The less a person consumes of a product, the smaller becomes the additional utility that he receives as a result of consuming an additional unit of the product. 3 Summing the marginal utilities of each unit consumed will determine total A) cost B) revenue C) utility D) consumption 4 The following table shows a hypothetical total utility schedule for a consumer of chocolate candy bars. Use the table to answer question. (35.0K) This consumer begins to experience diminishing marginal utility when he consumes the A) first candy bar B) second candy bar C) third candy bar D) fourth candy bar 5 The following table shows a hypothetical total utility schedule for a consumer of chocolate candy bars. Use the table to answer question. (35.0K) Marginal utility becomes negative with the consumption of the A) fourth candy bar B) fifth candy bar C) sixth candy bar D) seventh candy bar 6 The following table shows a hypothetical total utility schedule for a consumer of chocolate candy bars. Use the table to answer question. (35.0K) Based on the data, you can conclude that the A) marginal utility of the fourth unit is 6 B) marginal utility of the second unit is 27 C) total utility of 5 units is 42 D) total utility of 3 units is 55 7 After eating eight chocolate chip cookies, you are offered a ninth cookie. You turn down the cookie. Your refusal indicates that the A) marginal utility for chocolate chip cookies is negative B) total utility for chocolate chip cookies is negative C) marginal utility is positive for the eighth and negative for the ninth cookie D) total utility was zero because you ate one cookie and refused the other 8 Which is a dimension or assumption of the marginal-utility theory of consumer behavior? A) The consumer has a small income. B) The consumer is rational. C) Goods and services are free. D) Goods and services yield continually increasing amounts of marginal utility as the consumer buys more of them. 9 A consumer is making purchases of products A and B such that the marginal utility of product A is 20 and the marginal utility of product B is 30. The price of product A is $10 and the price of product B is $20. The utility-maximizing rule suggests that this consumer should A) increase consumption of product B and decrease consumption of product A B) increase consumption of product B and increase consumption of product A C) increase consumption of product A and decrease consumption of product B D) make no change in consumption of A or B 10 Suppose that the prices of A and B are $3 and $2, respectively, that the consumer is spending her entire income and buying 4 units of A and 6 units of B, and that the marginal utility of both the fourth unit of A and the sixth unit of B is 6. It can be concluded that the consumer should buy A) more of both A and B B) more of A and less of B C) less of A and more of B D) less of both A and B 11 Robert Woods is maximizing his satisfaction consuming two goods, X and Y. If the marginal utility of X is half that of Y, what is the price of X if the price of Y is $1.00? A) $0.50 B) $1.00 C) $1.50 D) $2.00 12 Answer question based on the following table showing the marginal-utility schedules for goods X and Y for a hypothetical consumer. The price of good X is $1 and the price of good Y is $2. The income of the consumer is $9. (41.0K) To maximize utility, the consumer will buy A) 7 X and 1 Y B) 5 X and 2 Y C) 3 X and 3 Y D) 1 X and 4 Y 13 Answer question based on the following table showing the marginal-utility schedules for goods X and Y for a hypothetical consumer. The price of good X is $1 and the price of good Y is $2. The income of the consumer is $9. (41.0K) When the consumer purchases the utility-maximizing combination of goods X and Y, total utility will be A) 36 B) 45 C) 48 D) 52 14 Answer question based on the following table showing the marginal-utility schedules for goods X and Y for a hypothetical consumer. The price of good X is $1 and the price of good Y is $2. The income of the consumer is $9. (41.0K) Suppose that the consumer’s income increased from $9 to $12. What would be the utility-maximizing combination of goods X and Y? A) 5 X and 2 Y B) 6 X and 3 Y C) 2 X and 5 Y D) 4 X and 4 Y 15 A decrease in the price of product Z will A) increase the marginal utility per dollar spent on Z B) decrease the marginal utility per dollar spent on Z C) decrease the total utility per dollar spent on Z D) cause no change in the marginal utility per dollar spent on Z 16 Answer question on the basis of the following total utility data for products A and B. Assume that the prices of A and B are $6 and $8, respectively, and that consumer income is $36. (40.0K) What is the level of total utility for the consumer in equilibrium? A) 86 B) 102 C) 108 D) 120 17 Answer question on the basis of the following total utility data for products A and B. Assume that the prices of A and B are $6 and $8, respectively, and that consumer income is $36. (40.0K) How many units of the two products will the consumer buy? A) 1 of A and 4 of B B) 2 of A and 2 of B C) 2 of A and 3 of B D) 3 of A and 4 of B 18 Answer question on the basis of the following total utility data for products A and B. Assume that the prices of A and B are $6 and $8, respectively, and that consumer income is $36. (40.0K) If the price of A decreases to $4, then the utility-maximizing combination of the two products is A) 2 of A and 2 of B B) 2 of A and 3 of B C) 3 of A and 3 of B D) 4 of A and 4 of B 19 Answer Questions on the basis of the following total utility data for products A and B. Assume that the prices of A and B are $6 and $8, respectively, and that consumer income is $36. (40.0K) Which of the following represents the demand curve for A? (36.0K) A) (a) B) (b) C) (c) D) (d) 20 Kristin Hansen buys only two goods, food and clothing. Both are normal goods for Kristin. Suppose the price of food decreases. Kristin’s consumption of clothing will A) decrease due to the income effect B) increase due to the income effect C) increase due to the substitution effect D) not change due to the substitution effect 21 The reason the substitution effect works to encourage a consumer to buy more of a product when its price decreases is because A) the real income of the consumer has been increased B) the real income of the consumer has been decreased C) the product is now relatively less expensive than it was D) other products are now relatively less expensive than they were 22 The price of water is substantially less than the price of diamonds because A) the marginal utility of a diamond is significantly less than the marginal utility of a gallon of water B) the marginal utility of a diamond is significantly greater than the marginal utility of a gallon of water C) the total utility of diamonds is greater than the total utility of water D) diamonds have a low marginal utility 23 A consumer has two basic choices: rent a movie for $4.00 and spend 2 hours of time watching it or spend $15 for dinner at a restaurant that takes 1 hour of time. If the marginal utilities of the movie and the dinner are the same, and the consumer values time at $15 an hour, the rational consumer will most likely A) rent more movies and buy fewer restaurant dinners B) buy more restaurant dinners and rent fewer movies C) buy fewer restaurant dinners and rent fewer movies D) make no change in the consumption of both 24 Compared to cash gifts, noncash gifts are preferred A) more because they decrease total utility B) more because they increase total utility C) less because they increase total utility D) less because they decrease total utility 25 According to prospect theory, for gains or losses near the status quo A) gains and losses are experienced more intensely B) gains and losses are experienced less intensely C) losses are experienced more intensely while gains are experienced less intensely D) losses are experienced less intensely while gains are experienced more intensely

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Which of the following expresses the law of diminishing marginal utility?

Which best expresses the law of diminishing marginal utility? (b) The more a person consumes of a product. the smaller becomes the additional utility that she receives as a result of consuming an additional unit of the product.

Which of the following is not true about the law of diminishing returns?

The answer is d). The marginal product of labor is the increase in total output derived from an additional unit of labor in production.

What does the law of diminishing returns state?

The law of diminishing returns is an economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other variables remain at a constant. As investment continues past that point, the return diminishes progressively.

For example, the law of diminishing returns states that in a production process, adding more workers might initially increase output and eventually creates the optimal output per worker. After that optimal point, however, the efficiency of each worker decreases because other factors – such as the production technique or the available resources – remain the same (this is known, more specifically, as the law of diminishing marginal returns).

This kind of problem might be addressed by modernizing the production technique using technology.

What is the law of diminishing return quizlet?

The Law of Diminishing Marginal Returns (LDMR) A law that states that if additional units of one resource are added to another resource in fixed supply, eventually the additional output will decrease. Increasing returns.

Which of the following is an example of the law of diminishing returns quizlet?

M17: Which of the following is an example of the law of diminishing returns? The rate of utility gained decreases each additional hour that isabella stays up to study, because her study provides less benefit to her as she starts to get tired.

What is the law of diminishing returns Mcq?

According the law of diminishing returns: The marginal product of a variable factor eventually falls as more units of it are added to a fixed factor. Marginal utility falls as more units of a product are consumed. The total product falls as more units of a variable factor are added to a fixed factor.

Why is the law of diminishing marginal returns true Mcq?

Law of Diminishing return MCQ – Objective Question Answer for Law of Diminishing return Quiz – Download Now! Exceptions to law of diminishing marginal utility include

  1. Reading
  2. Money
  3. Acquiring knowledge
  4. All of the above

Option 4 : All of the above Stay updated with the questions & answers with Testbook. Know more about Consumer behaviour and ace the concept of Law of Diminishing return. The correct answer is All of the above. Key Points Marginal utility – It is the additional utility derived from the consumption of an additional unit of a commodity. Marginal utility is also known as Marginal Satiety.

  • MU = Change in TU/Change in Quantity
  • MU= TU n – TU n-1
  • Also, Marginal Utility is the additional utility made to be TU by the addition consumption of one more unit of a commodity.
  • Important Points Law of diminishing marginal utility –
  • According to the Law of Diminishing Marginal Utility, the additional utility derived from increasing consumption declines with each additional increase in consumption level.
  • It enables us to comprehend why consumers are becoming less and less satisfied with each new good unit.
  • The ordinal utility theory serves as the foundation for the law, which is subject to certain presumptions.

Exceptions to the law of diminishing marginal utility –

  1. Hobbies/Addictions – In the case of addictions, this law is not applicable. For an alcoholic, the marginal benefit of consuming one more drink does not diminish. Similar to this, someone who enjoys painting would not encounter diminishing marginal utility when creating a new work of art.
  2. Rare Items – Additionally, it is not applicable to rare things. It is particularly true for enthusiasts who pursue and are passionate about such topics. For instance, a watch collector who already owns a lot of watches would find considerably greater satisfaction in purchasing a limited-edition timepiece.
  3. Unrealistic Assumptions – This legislation makes assumptions that sometimes do not hold true. Occasionally, a customer could make an irrational choice.

Hence, r eading (hobby), money and acquiring knowledge (hobbies) are exceptions to law of diminishing marginal utility. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students The law of variable proportions assumes

  1. When marginal cost falls, total production will decrease
  2. Utility is maximised when marginal production falls
  3. Some factors of production are fixed
  4. When marginal production falls, total production is maximum

Option 3 : Some factors of production are fixed

  1. The correct answer is Some factors of production are fixed
  2. Key Points Law of Variable Proportion:
  3. According to the law of variable proportion states that when the quantity of one factor of production is increased, while keeping all other factors constant, it will result in the decline of the marginal product of that factor.
  4. Important Points
  5. Example:

Increasing Returns – Stage 1

  • Average output rises in the first stage as fixed factors and increasing amounts of labour and capital are used (land).
  • The total, average, and marginal products all show growth, although the average and marginal products rise by up to 40 units.
  • Later, both begin to decline because the ratio of employees to land was adequate, and the land was not being utilised efficiently.
  • The first stage ends.

Decreasing Returns – Stage 2

  • Where the first stage ends, or where AP=MP, is where the second stage begins. Average and marginal products begin to decline at this point.
  • We should be aware that marginal product declines more quickly than average product.
  • Here, the rate of growth of the overall product is decreasing.
  • Additionally, the marginal product reaches 0 at 7 units of labour, while the average product never reaches zero
  • At this point MP is 0 and TP is maximum

Negative Returns:

  • Where the second stage ends, the third stage starts.
  • This begins in the eighth unit.
  • Here, the average product is still positive even though the marginal product is negative and the total product decreases.
  • Any additional dose at this point results in positive annoyance since it decreases the marginal product.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students Law of diminishing returns of factors is relevent to :

  1. Short period
  2. Long period
  3. Secular period
  4. Both short and long periods

Law Of Diminishing Returns : In economics, diminishing returns is the decrease in the marginal output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant. At a certain point, employing an additional factor of production causes a relatively smaller increase in output.

  • Diminishing returns occur in the short run when one factor is fixed (e.g. capital)
  • If the variable factor of production is increased (e.g. labor), there comes a point where it will become less productive and therefore there will eventually be a decreasing marginal and then average product.
  • This is because, if capital is fixed, extra workers will eventually get in each other’s way as they attempt to increase production. For instance, think about the effectiveness of extra workers in a small café. If more workers are employed, production could increase but more and more slowly.
  • This law only applies in the short run because, in the long run, all factors are variable.

Thus, option 1 is the correct answer. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students

  • Assertion A): U-shaped long-run average cost curve is based on the assumption that economies of scale prevails at small levels of production and diseconomies of scale prevails at larger level of production.
  • Reason R): Decreasing returns to scale arises primarily because as the scale of operation increases, it becomes even more difficult to manage the firm effectively.
  • In the context of the above two statements, which one of the following codes is correct?
  1. Both A) and R) are correct and R) is the right explanation of A)
  2. Both A) and R) are correct and R) is not the right explanation of A)
  3. A) is correct and R) is not incorrect
  4. Both A) and R) are incorrect

Option 2 : Both A) and R) are correct and R) is not the right explanation of A) Assertion A): U-shaped long-run average cost curve is based on the assumption that economies of scale prevail at small levels of production and diseconomies of scale prevails at larger levels of production. Explanation:

  1. The long-run cost curves are U-shaped due to economies of scale and diseconomies of scale.
  2. If a firm has high fixed costs, the increasing output will lead to lower average costs.
  3. This will result in economies of scale. However, after a certain output, a firm may experience diseconomies of scale.
  4. This occurs where increased output leads to higher average costs.
  5. For example, in a big firm, it is more difficult to communicate and coordinate workers. Thus, economies of scale prevail at small levels of production, and diseconomies of scale prevail at a larger level of production. In the long-run, three returns to scale operate i.e. Increasing Returns to Scale, Constant Returns to Scale, and Diminishing Returns to Scale which is also one of the reasons because of which the Long Run Average Curve is U-shaped.
  1. Therefore, the Assertion (A) is correct.
  2. Reason R): Decreasing returns to scale arises primarily because as the scale of operation increases, it becomes even more difficult to manage the firm effectively.
  3. Explanation:
  1. Diminishing returns to scale ensure that the size of the productive firms cannot be infinitely large.
  2. Generally, after a limit when the quantity of the factors of the production is increased in such a way that the proportion of the factors remain unchanged, output increases in a smaller proportion as compared to increases in the amounts of the factors of production.
  3. This might be because when the scale of operation increases, it becomes difficult to handle large units of labor and co-ordination is at stake which results in decreasing overall efficiency.
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Therefore, Reason (R) is the correct statement but R) is not the right explanation of A as the Long-Run Average Cost Curve is U-shaped not only because of Decreasing Returns but also because of Increasing and Constant Returns To Scale. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students The essence of the law of diminishing returns is

  1. inelastic production
  2. negative marginal production
  3. declining total production
  4. declining average production

Option 2 : negative marginal production The essence of the law of diminishing returns is negative marginal production. Explanation:

  1. Law Of Diminishing Returns states that as one variable input is increased, with all others remaining fixed, a point will be reached beyond which the marginal physical product of the variable factor will begin to decrease,
  2. Still, if additional variable input is added, it will lead to negative marginal production.
  3. For example, if a factory employs workers to manufacture its products, at some point, the company will operate at an optimal level; with all other production factors constant, adding additional workers beyond this optimal level will result in less efficient operations as the size of the factory and equipment will remain as it is but workers will increase resulting in the chaos which will reduce efficiency.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students The essence of the law of diminishing returns is

  1. inelastic production
  2. negative marginal production
  3. declining total production
  4. declining average production

Option 2 : negative marginal production

  • The essence of the law of diminishing returns is negative marginal production.
  • Explanation:
  1. Law Of Diminishing Returns states that as one variable input is increased, with all others remaining fixed, a point will be reached beyond which the marginal physical product of the variable factor will begin to decrease,
  2. Still, if additional variable input is added, it will lead to negative marginal production.
  3. For example, if a factory employs workers to manufacture its products, at some point, the company will operate at an optimal level; with all other production factors constant, adding additional workers beyond this optimal level will result in less efficient operations as the size of the factory and equipment will remain as it is but workers will increase resulting in the chaos which will reduce efficiency.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students The law of variable proportions assumes

  1. When marginal cost falls, total production will decrease
  2. Utility is maximised when marginal production falls
  3. Some factors of production are fixed
  4. When marginal production falls, total production is maximum

Option 3 : Some factors of production are fixed

  1. The correct answer is Some factors of production are fixed
  2. Key Points Law of Variable Proportion:
  3. According to the law of variable proportion states that when the quantity of one factor of production is increased, while keeping all other factors constant, it will result in the decline of the marginal product of that factor.
  4. Important Points
  5. Example:
  6. Increasing Returns – Stage 1
  • Average output rises in the first stage as fixed factors and increasing amounts of labour and capital are used (land).
  • The total, average, and marginal products all show growth, although the average and marginal products rise by up to 40 units.
  • Later, both begin to decline because the ratio of employees to land was adequate, and the land was not being utilised efficiently.
  • The first stage ends.

Decreasing Returns – Stage 2

  • Where the first stage ends, or where AP=MP, is where the second stage begins. Average and marginal products begin to decline at this point.
  • We should be aware that marginal product declines more quickly than average product.
  • Here, the rate of growth of the overall product is decreasing.
  • Additionally, the marginal product reaches 0 at 7 units of labour, while the average product never reaches zero
  • At this point MP is 0 and TP is maximum

Negative Returns:

  • Where the second stage ends, the third stage starts.
  • This begins in the eighth unit.
  • Here, the average product is still positive even though the marginal product is negative and the total product decreases.
  • Any additional dose at this point results in positive annoyance since it decreases the marginal product.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students

  • Assertion A): U-shaped long-run average cost curve is based on the assumption that economies of scale prevails at small levels of production and diseconomies of scale prevails at larger level of production.
  • Reason R): Decreasing returns to scale arises primarily because as the scale of operation increases, it becomes even more difficult to manage the firm effectively.
  • In the context of the above two statements, which one of the following codes is correct?
  1. Both A) and R) are correct and R) is the right explanation of A)
  2. Both A) and R) are correct and R) is not the right explanation of A)
  3. A) is correct and R) is not incorrect
  4. Both A) and R) are incorrect

Option 2 : Both A) and R) are correct and R) is not the right explanation of A) Assertion A): U-shaped long-run average cost curve is based on the assumption that economies of scale prevail at small levels of production and diseconomies of scale prevails at larger levels of production. Explanation:

  1. The long-run cost curves are U-shaped due to economies of scale and diseconomies of scale.
  2. If a firm has high fixed costs, the increasing output will lead to lower average costs.
  3. This will result in economies of scale. However, after a certain output, a firm may experience diseconomies of scale.
  4. This occurs where increased output leads to higher average costs.
  5. For example, in a big firm, it is more difficult to communicate and coordinate workers. Thus, economies of scale prevail at small levels of production, and diseconomies of scale prevail at a larger level of production. In the long-run, three returns to scale operate i.e. Increasing Returns to Scale, Constant Returns to Scale, and Diminishing Returns to Scale which is also one of the reasons because of which the Long Run Average Curve is U-shaped.
  1. Therefore, the Assertion (A) is correct.
  2. Reason R): Decreasing returns to scale arises primarily because as the scale of operation increases, it becomes even more difficult to manage the firm effectively.
  3. Explanation:
  1. Diminishing returns to scale ensure that the size of the productive firms cannot be infinitely large.
  2. Generally, after a limit when the quantity of the factors of the production is increased in such a way that the proportion of the factors remain unchanged, output increases in a smaller proportion as compared to increases in the amounts of the factors of production.
  3. This might be because when the scale of operation increases, it becomes difficult to handle large units of labor and co-ordination is at stake which results in decreasing overall efficiency.

Therefore, Reason (R) is the correct statement but R) is not the right explanation of A as the Long-Run Average Cost Curve is U-shaped not only because of Decreasing Returns but also because of Increasing and Constant Returns To Scale. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students The essence of the law of diminishing returns is

  1. inelastic production
  2. negative marginal production
  3. declining total production
  4. declining average production

Option 2 : negative marginal production

  • The essence of the law of diminishing returns is negative marginal production.
  • Explanation:
  1. Law Of Diminishing Returns states that as one variable input is increased, with all others remaining fixed, a point will be reached beyond which the marginal physical product of the variable factor will begin to decrease,
  2. Still, if additional variable input is added, it will lead to negative marginal production.
  3. For example, if a factory employs workers to manufacture its products, at some point, the company will operate at an optimal level; with all other production factors constant, adding additional workers beyond this optimal level will result in less efficient operations as the size of the factory and equipment will remain as it is but workers will increase resulting in the chaos which will reduce efficiency.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students Law of diminishing returns of factors is relevent to :

  1. Short period
  2. Long period
  3. Secular period
  4. Both short and long periods
  1. Law Of Diminishing Returns : In economics, diminishing returns is the decrease in the marginal output of a production process as the amount of a single factor of production is incrementally increased, while the amounts of all other factors of production stay constant.
  2. At a certain point, employing an additional factor of production causes a relatively smaller increase in output.
  • Diminishing returns occur in the short run when one factor is fixed (e.g. capital)
  • If the variable factor of production is increased (e.g. labor), there comes a point where it will become less productive and therefore there will eventually be a decreasing marginal and then average product.
  • This is because, if capital is fixed, extra workers will eventually get in each other’s way as they attempt to increase production. For instance, think about the effectiveness of extra workers in a small café. If more workers are employed, production could increase but more and more slowly.
  • This law only applies in the short run because, in the long run, all factors are variable.

Thus, option 1 is the correct answer. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students The law of variable proportions assumes

  1. When marginal cost falls, total production will decrease
  2. Utility is maximised when marginal production falls
  3. Some factors of production are fixed
  4. When marginal production falls, total production is maximum

Option 3 : Some factors of production are fixed

  • The correct answer is Some factors of production are fixed
  • Key Points Law of Variable Proportion:
  • According to the law of variable proportion states that when the quantity of one factor of production is increased, while keeping all other factors constant, it will result in the decline of the marginal product of that factor.
  • Important Points
  • Example:
  • Increasing Returns – Stage 1
  • Average output rises in the first stage as fixed factors and increasing amounts of labour and capital are used (land).
  • The total, average, and marginal products all show growth, although the average and marginal products rise by up to 40 units.
  • Later, both begin to decline because the ratio of employees to land was adequate, and the land was not being utilised efficiently.
  • The first stage ends.
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Decreasing Returns – Stage 2

  • Where the first stage ends, or where AP=MP, is where the second stage begins. Average and marginal products begin to decline at this point.
  • We should be aware that marginal product declines more quickly than average product.
  • Here, the rate of growth of the overall product is decreasing.
  • Additionally, the marginal product reaches 0 at 7 units of labour, while the average product never reaches zero
  • At this point MP is 0 and TP is maximum

Negative Returns:

  • Where the second stage ends, the third stage starts.
  • This begins in the eighth unit.
  • Here, the average product is still positive even though the marginal product is negative and the total product decreases.
  • Any additional dose at this point results in positive annoyance since it decreases the marginal product.

India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students

  1. Assertion A): U-shaped long-run average cost curve is based on the assumption that economies of scale prevails at small levels of production and diseconomies of scale prevails at larger level of production.
  2. Reason R): Decreasing returns to scale arises primarily because as the scale of operation increases, it becomes even more difficult to manage the firm effectively.
  3. In the context of the above two statements, which one of the following codes is correct?
  1. Both A) and R) are correct and R) is the right explanation of A)
  2. Both A) and R) are correct and R) is not the right explanation of A)
  3. A) is correct and R) is not incorrect
  4. Both A) and R) are incorrect

Option 2 : Both A) and R) are correct and R) is not the right explanation of A) Assertion A): U-shaped long-run average cost curve is based on the assumption that economies of scale prevail at small levels of production and diseconomies of scale prevails at larger levels of production. Explanation:

  1. The long-run cost curves are U-shaped due to economies of scale and diseconomies of scale.
  2. If a firm has high fixed costs, the increasing output will lead to lower average costs.
  3. This will result in economies of scale. However, after a certain output, a firm may experience diseconomies of scale.
  4. This occurs where increased output leads to higher average costs.
  5. For example, in a big firm, it is more difficult to communicate and coordinate workers. Thus, economies of scale prevail at small levels of production, and diseconomies of scale prevail at a larger level of production. In the long-run, three returns to scale operate i.e. Increasing Returns to Scale, Constant Returns to Scale, and Diminishing Returns to Scale which is also one of the reasons because of which the Long Run Average Curve is U-shaped.
  • Therefore, the Assertion (A) is correct.
  • Reason R): Decreasing returns to scale arises primarily because as the scale of operation increases, it becomes even more difficult to manage the firm effectively.
  • Explanation:
  1. Diminishing returns to scale ensure that the size of the productive firms cannot be infinitely large.
  2. Generally, after a limit when the quantity of the factors of the production is increased in such a way that the proportion of the factors remain unchanged, output increases in a smaller proportion as compared to increases in the amounts of the factors of production.
  3. This might be because when the scale of operation increases, it becomes difficult to handle large units of labor and co-ordination is at stake which results in decreasing overall efficiency.

Therefore, Reason (R) is the correct statement but R) is not the right explanation of A as the Long-Run Average Cost Curve is U-shaped not only because of Decreasing Returns but also because of Increasing and Constant Returns To Scale. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students Exceptions to law of diminishing marginal utility include

  1. Reading
  2. Money
  3. Acquiring knowledge
  4. All of the above

Option 4 : All of the above The correct answer is All of the above. Key Points Marginal utility – It is the additional utility derived from the consumption of an additional unit of a commodity. Marginal utility is also known as Marginal Satiety.

  1. MU = Change in TU/Change in Quantity
  2. MU= TU n – TU n-1
  3. Also, Marginal Utility is the additional utility made to be TU by the addition consumption of one more unit of a commodity.
  4. Important Points Law of diminishing marginal utility –
  • According to the Law of Diminishing Marginal Utility, the additional utility derived from increasing consumption declines with each additional increase in consumption level.
  • It enables us to comprehend why consumers are becoming less and less satisfied with each new good unit.
  • The ordinal utility theory serves as the foundation for the law, which is subject to certain presumptions.

Exceptions to the law of diminishing marginal utility –

  1. Hobbies/Addictions – In the case of addictions, this law is not applicable. For an alcoholic, the marginal benefit of consuming one more drink does not diminish. Similar to this, someone who enjoys painting would not encounter diminishing marginal utility when creating a new work of art.
  2. Rare Items – Additionally, it is not applicable to rare things. It is particularly true for enthusiasts who pursue and are passionate about such topics. For instance, a watch collector who already owns a lot of watches would find considerably greater satisfaction in purchasing a limited-edition timepiece.
  3. Unrealistic Assumptions – This legislation makes assumptions that sometimes do not hold true. Occasionally, a customer could make an irrational choice.

Hence, r eading (hobby), money and acquiring knowledge (hobbies) are exceptions to law of diminishing marginal utility. India’s #1 Learning Platform Start Complete Exam Preparation Daily Live MasterClasses Practice Question Bank Mock Tests & Quizzes Trusted by 3.5 Crore+ Students : Law of Diminishing return MCQ – Objective Question Answer for Law of Diminishing return Quiz – Download Now!

What is the law of diminishing marginal product answer?

Law of Diminishing Marginal Productivity – An economic rule governing production which holds that if more variable input units are used along with a certain amount of fixed inputs, the overall output might grow at a faster rate initially, then at a steady rate, but ultimately, it will grow at a declining rate.

What is the law of diminishing demand provide one example?

The law of diminishing marginal utility explains that as a person consumes an item or a product, the satisfaction or utility they derive from the product wanes as they consume more and more of that product. For example, an individual might buy a certain type of chocolate for a while.

Soon, they may buy less and choose another type of chocolate or buy cookies instead because the satisfaction they were initially getting from the chocolate is diminishing. In economics, the law of diminishing marginal utility states that the marginal utility of a good or service declines as more of it is consumed by an individual.

Economic actors receive less and less satisfaction from consuming incremental amounts of a good.

Which of the following is an example of diminishing returns?

Which of the following is an example of the law of diminishing marginal​ returns? Holding capital​ constant, when the amount of labor increases from 5 to​ 6, output increases from 20 to 25. Then when labor increases from 6 to​ 7, output increases from 25 to 28.

Which of the following is not an example of the law of diminishing marginal utility?

Substitution of goods is not an assumption under law of DMU, because if one good substitutes for another then law of DMU will not remain applicable.

Which of the following is the basis of diminishing marginal utility Mcq?

Law of diminishing marginal utility is based on psychological law that as more and more units of a commodity is consumed, marginal utility derived from every successive unit will decline in respect to all goods with a few exception. Was this answer helpful?

Which of the following is or are true about the law of diminishing marginal utility?

B)The law of diminishing marginal utility states that as the consumption increases the marginal utility derived from the each successive units tends to decline. The consumer is less willing to sacrifice one good to consume one more additional unit of another good at a higher level of consumption.

Which of the following best defines diminishing marginal utility?

Explanation: Law of diminishing marginal utility states that as and when a consumer consumes more and more of a product, the satisfaction derived from the subsequent units consumed falls.

What is the law of diminishing demand provide one example?

If the price of a product is raised, a smaller quantity will be demanded and if the price of a product is lowered, a greater quantity will be demanded. +1 -1.

Which of the following is an example of the law of diminishing returns quizlet?

M17: Which of the following is an example of the law of diminishing returns? The rate of utility gained decreases each additional hour that isabella stays up to study, because her study provides less benefit to her as she starts to get tired.

What is diminishing price explain with example?

Understanding Diminishing Marginal Utility – The law of diminishing marginal utility directly relates to the concept of diminishing prices. As the utility of a product decreases as its consumption increases, consumers are willing to pay smaller dollar amounts for more of the product.

The goods being consumed are identical.The units are consumed quickly with few breaks in between.Units are not too big or too small.The consumer’s taste is constant.There is no change in the price of the goods or of their substitutes.The unit can be measured.The consumer is making rational decisions about consumption.

The marginal utility may decrease into negative utility. At that point, it’s entirely unfavorable to consume another unit of any product. Therefore, the first unit of consumption for any product is typically highest. After that, every unit of consumption to follow holds less and less utility.