Diminishing Marginal Returns Occurs When

question 271

Multiple Choice

Diminishing marginal returns occurs when

• A) all inputs are increased and output decreases.
• B) all inputs are increased and output increases by a smaller proportion.
• C) a variable input is increased and output decreases.
• D) a variable unit is increased and its marginal product falls.

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Definitions:

Dividend Irrelevance

Dividend irrelevance theory suggests that the dividend policy a company follows has no effect on the company’s stock price or its cost of capital.

Transaction Costs

Expenses incurred when buying or selling goods and services, which can include commissions, fees, the spread between buy/sell prices, and other related costs.

Floatation Costs

The total costs associated with a company issuing new stocks or bonds, including underwriting, legal, registration, and other expenses.

Dividend Irrelevance Theory

A theory proposed by Modigliani and Miller that suggests dividend policies do not affect a company’s capital structure or stock price in a perfect market.