In the short-run, a firm cannot vary its capital, K-4, but can vary its labor, L
ID: 1110905 • Letter: I
Question
In the short-run, a firm cannot vary its capital, K-4, but can vary its labor, L. It produces output q. Explain why the firm will or will not experience diminishing marginal returns to labor in the short-run if its production function is q=10L + K. Note that dq/dL 10 In the short-run, the firm 0 A. will not experience diminishing marginal returns to labor because labor's marginal product is constant. O B. will not experience diminishing marginal returns to labor because labor's marginal product equals 10. O C. will experience diminishing marginal returns to labor because labor's marginal product equals 10 O D. will experience diminishing marginal returns to labor because labor's marginal product equals 10L O E. both a and b.Explanation / Answer
1.
MPL = dQ/dL = 10
Since MPL is constant, there will be constant returns to labor.
Thus correct option is (e) both a and b
2.
Correct option: (d)
Reason: Since MPL has L in denominator, it will have diminishing returns to labor because increasing labor will decrease output.