Question
A firm uses only input A and input B to make an output. Suppose that initially the firm uses 10 units of input A and
A firm uses only input A and input B to make an output. Suppose that initially the firm uses 10 units of input A and produces 5 units of output. When the firm increases its use of input Ato 11 units, it produces 8 units of output. In addition, when the firm increases its use of input A again to 12 units, it produces 12 units of output. Assume all the amount of input B used remain constant. How does this relate to law of diminishing marginal returns?
A. The firm is experience increasing returns but as more of input A is added the marginal output will eventually decrease.
B. The firm is experiencing returns but as more of input A is added the output will eventually decrease.
C. It doesn't demonstrate increasing returns
D. Return have started to decrease?
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