For the following data "Diminishing marginal returns" start to occur between units: Output 0 1 2 3 4 5 6 Total cost 240 330 410 480 550 610 690

Question

Accepted Answer

Option 3 is the correct answer because "diminishing marginal returns" occur when the additional output produced by an additional unit of input starts to decrease. To identify where this happens, we need to calculate the marginal cost for each additional unit of output and observe where it begins to increase.

Let's calculate the marginal cost between each unit of output:

1. From 0 to 1 unit: Marginal Cost = 330 - 240 = 90
2. From 1 to 2 units: Marginal Cost = 410 - 330 = 80
3. From 2 to 3 units: Marginal Cost = 480 - 410 = 70
4. From 3 to 4 units: Marginal Cost = 550 - 480 = 70
5. From 4 to 5 units: Marginal Cost = 610 - 550 = 60
6. From 5 to 6 units: Marginal Cost = 690 - 610 = 80

Diminishing marginal returns are indicated by an increase in marginal cost. Between units 4 and 5, the marginal cost decreases from 70 to 60, but then between units 5 and 6, the marginal cost increases from 60 to 80. This increase in marginal cost between units 5 and 6 indicates the onset of diminishing marginal returns.

Now, let's explain why the other options are incorrect:

1. **Option 1 (2 and 3):** Between units 2 and 3, the marginal cost decreases from 80 to 70. This does not indicate diminishing marginal returns, as the marginal cost is not increasing.

2. **Option 2 (3 and 4):** Between units 3 and 4, the marginal cost remains constant at 70. There is no increase in marginal cost, so diminishing marginal returns are not occurring here.

3. **Option 4 (5 and 6):** While the marginal cost does increase between units 5 and 6, the question asks when diminishing returns start to occur. The increase in marginal cost between units 5 and 6 confirms the presence of diminishing returns, but the onset is identified between units 4 and 5, where the marginal cost first begins to rise after previously decreasing.

Therefore, Option 3 is the correct answer, as it accurately identifies the point at which diminishing marginal returns begin to occur.