Question and answer
A baker calculates that by spending $16 on labor and materials, she can bake 10 cakes a day. $24 will allow her to bake 12 cakes, while $36 spent on labor and materials produces 14 cakes. In terms of
capital and labor, the baker has A. increasing marginal returns. B. constant marginal returns. C. decreasing marginal returns. D. negative marginal returns.
The answer to your question is C. If she could bake 10 cakes for $16 you would expect her to bake double the amount for double the price. However, she can only bake 14 cakes for 4 extra dollars. [ You can see the definition of decreasing marginal returns (also known as diminishing returns) here: ]
Expert answered|elysia2003|Points 119|
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Asked 6/17/2012 9:04:25 AM
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