Diminishing Returns to Capital Means That as You Add More

question 23

Multiple Choice

Diminishing returns to capital means that as you add more capital:

• A) output falls.
• B) the additional contribution to output eventually declines.
• C) labor usage falls.
• D) output rises.

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Definitions:

Operating Leverage

Operating leverage describes the extent to which a company can increase its profits by increasing sales, highlighting the ratio of fixed costs to variable costs.

Net Operating Income

The amount of profit a company makes from its normal business operations, excluding any income or costs from investments and other non-core business activities.

Sales Volume

The quantity of goods or services sold by a company within a specific period, used to measure business performance.

High-Low Method

An accounting technique used to estimate fixed and variable costs based on the highest and lowest levels of activity or cost.