CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Which of the following best explains why there are diminishing returns in the short run?

A. In the short run, some inputs are fixed, so no more output can be produced.
B. In the short run, some inputs are fixed, so variable inputs have less to work with and output increases at a decreasing rate.
C. In the short run, some inputs are fixed, so variable inputs have less to work with and output increases at an increasing rate.
D. In the short run, no inputs can be varied, and thus production increases at a decreasing rate.
E. In the short run, all inputs can be varied, but production increases slowly because there is not enough time.
Correct Answer: B

Diminishing returns occur because at least one input is fixed in the short run. Thus, variable inputs have less of that input per worker, and thus each variable input is less productive than the previous one.

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