Question

As Al's Radiator Company adds workers while keeping the same amount of machinery, some workers may be underutilized because they have little work to do while waiting in line to use the machinery. When this occurs, Al's Radiator Company encounters
A. economies of scale.
B. diseconomies of scale.
C. increasing marginal returns.
D. diminishing marginal returns.

Answer 1

Answer:

D. Diminishing Marginal Returns.

Explanation:

Just as seen in AI's radiator company, it is seen that their is an effect of increasing input in the short run while at least one production variable is kept constant, such as labor or capital. Returns to scale are an effect of increasing input in all variables of production in the long run.

In the other hand, the law of diminishing marginal returns states that with every additional unit in one factor of production, while all other factors are held constant, the incremental output per unit will decrease at some point.