Which of the following best describes the law of diminishing returns?
a. The principle that beyond some point the marginal product decreases as additional units of a variable factor (ex: labor) are added to a fixed factor (ex: a restaurant kitchen).
b. The concept that as a person consumes more and more of a good, such as pizza slices, that the marginal utility from each additional slice will decline.
c. The empirical fact that the profitability of firms declines in the long run due to increasing competition.
d. None of the above.
a
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Which of the following explains why a $100 billion reduction in consumption spending might decrease equilibrium real GDP by more than $100 billion?
a. Say's law. b. The quantity theory of money. c. Flexible resource prices. d. The multiplier principle.