Question

Given below are two statements:
Statement (I): Law of diminishing returns is law of diminishing marginal productivity.
Statement (II): When the variable factor becomes more, it can lead to positive value of the marginal product.
In light of the above statements, choose the most appropriate answer from the options given below:

• A. Both Statement (I) and Statement (II) are true.
• B. Both Statement (I) and Statement (II) are false.
• C. Statement (I) is true but Statement (II) is false.
• D. Statement (I) is false but Statement (II) is true.

Hint:

Remember the three stages of production:
Stage 1: Increasing marginal returns (MP is positive and rising).
Stage 2: Diminishing marginal returns (MP is positive but falling).
Stage 3: Negative marginal returns (MP becomes negative).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The Law of Diminishing Returns (or Law of Variable Proportions) describes how output changes when you add more of a variable factor of production (such as labor) to a fixed factor of production (such as land).

Step 2: Detailed Explanation:
Let us evaluate both statements:
Statement (I) is correct.
The Law of Diminishing Returns is also known as the Law of Diminishing Marginal Productivity.
It states that as you add more units of a variable input to fixed inputs, the marginal product of the variable input will eventually decline.
Statement (II) is incorrect.
In the initial stages of production (Stage I), adding more of a variable factor increases the marginal product, which is positive.
However, in the stage of diminishing returns (Stage II), the marginal product begins to decline, although it remains positive.
If you continue to add more of the variable input beyond a certain point (Stage III), the fixed factors become overcrowded, causing the marginal product to become *negative* (such as having too many workers in a small field, which reduces total output).
Since adding excessive variable inputs eventually leads to a negative marginal product, the statement claiming it "leads to a positive value" as a general rule is incorrect.
Therefore, Statement (I) is true, but Statement (II) is false.

Step 3: Final Answer:
Statement (I) is true but Statement (II) is false.