Diminishing Marginal Returns Occurs as a Firm Adds More Variable

question 19

Multiple Choice

Diminishing marginal returns occurs as a firm adds more variable inputs to at least one fixed input because

• A)the ability or quality of the variable inputs hired decreases as more of them are hired.
• B)the firm must lower the price of its product when it produces more units of output.
• C)the per unit cost it must pay for variable inputs increases as more inputs are hired.
• D)as more variable inputs are hired, the amount of the fixed input per unit of variable input decreases.

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Definitions:

Payback Method

A capital budgeting technique that calculates the time required to recoup the cost of an investment, focusing on cash flows rather than profitability or cost of capital.

Bias Towards Liquidity

A preference or inclination for holding or investing in liquid assets, usually due to concerns about future cash needs or market volatility.

Project Analysis

The process of evaluating the financial and operational implications of a proposed project or investment to determine its viability and expected returns.

Net Present Value

An economic indicator for assessing an investment's gainfulness, which involves the deduction of the present value of cash expenditures from the present value of cash receipts over a certain period.