According to the traditional view of the production process, capital is subject to which of the following?

• A. increasing marginal returns
• B. negative marginal returns
• C. diminishing marginal returns
• D. constant marginal returns

Answer: (C)

Verified step by step guidance

1. Understand the concept of marginal returns: Marginal returns refer to the additional output produced by adding one more unit of an input, holding other inputs constant.
2. Recall the traditional view of the production process, which states that inputs like labor and capital experience different phases of marginal returns as their quantity changes.
3. Identify that capital, as a factor of production, typically exhibits diminishing marginal returns after a certain point. This means that each additional unit of capital adds less to output than the previous unit.
4. Recognize that increasing marginal returns imply each additional unit adds more output than the previous one, which is generally associated with early stages of production or learning effects, not capital in the traditional view.
5. Note that negative marginal returns mean adding more input actually reduces total output, and constant marginal returns mean each additional unit adds the same amount of output; neither aligns with the traditional view of capital's behavior.