CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Bill lives in Montana and likes to grow zucchini. He applies fertilizer to his crop twice during the growing season and notices that the second layer of fertilizer increases his crop, but not as much as the first layer. What economic concept best explains this observation?
A. The law of diminishing marginal utility
B. The law of diminishing returns
C. The return equalization principle
Explanation: The law of diminishing returns implies that as increasing amounts of the variable input is used, the additional output associated with one more unit of input decreases. Thus, the marginal return associated with one more unit of input declines. If output increases at a decreasing rate, this implies that although output increases as another unit of input is applied, it is increasing by less and less. Thus, more and more inputs are required in order to increase output by one unit.

User Contributed Comments 5

User Comment
danlan It's talking about return and not utility, so A is wrong.
whoi if you measure return as the amount of zucchinis, alright....

BUT if you measure utility Bill gets from using/eating fertilized vegetables I'm not that sure ;)
mlangstrom doesnt the zucchini experiance a diminishing marginal utility from the fertilizer?
steved333 that's what I was thinking. You derive utility from the inputs you put into your product. You derive less utility from the next portion of fertilizer. But I understand that the zucchini yield is the return.
Profache Fertilizer is a factor of production, such as labor. It affects the cost/revenue, not the utility of a product.
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