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      Question

      When both Average Product (AP) and Marginal Product (MP)

      are falling, it indicates the operation of which economic law?
      A Law of Increasing Returns to a Factor Correct Answer Incorrect Answer
      B Law of Constant Returns to a Factor Correct Answer Incorrect Answer
      C Law of Diminishing Marginal Returns Correct Answer Incorrect Answer
      D Law of Returns to Scale Correct Answer Incorrect Answer

      Solution

      When both Average Product (AP) and Marginal Product (MP) are falling, it indicates the operation of the Law of Diminishing Marginal Returns. This law states that as more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decline, and consequently, so will the average product.

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