Suppose That a Firm Produces Hard Candies Using Both Machines

question 35

Multiple Choice

Suppose that a firm produces hard candies using both machines and labor, and that its quantity of machines is currently fixed but it can vary the number of workers. As more workers are added to operate the machines, output increases. Is this a refutation of the law of diminishing marginal returns?

• A)Yes, because the law definitely states that output will decrease as more workers are added.
• B)No, because we must be observing output in the long run if the stated scenario is occurring.
• C)Yes, because the only way that this could occur is if the number of machines being used is also increasing.
• D)No, because it is entirely possible for output to increase even when the law is in operation.

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Definitions:

Risk-free Return

The theoretical return on an investment with no risk of financial loss, typically associated with government bonds.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, used in finance to gauge the return volatility of an investment.

Defined Contribution Plan

A type of retirement plan where the employee and/or employer contribute a set amount to the employee's individual account during their employment years.

Risk-free Return

The theoretical return of an investment with zero risk, typically associated with government bonds.