If additional unit of a variable factor input causes a fall in the marginal product, this implies that

Step 1: Analyze the question The question asks what it means when adding one more unit of a variable input causes the marginal product (MP) to fall.

Step 2: Explain the concept

• Marginal product (MP) is the extra output gained from employing one more unit of a variable factor, with other factors held fixed.
• The law of diminishing returns says that as more units of a variable factor are added to fixed factors, a point is reached where the marginal product begins to fall.

Important distinction:

• When MP starts to fall, diminishing returns has set in. Total product (TP) still rises, but at a decreasing rate.
• TP starts to decline only when MP becomes negative.
• Average product (AP) is zero only when total output is zero, so it is not zero here.

Step 3: Test each option

• A. Total product starts declining: Wrong. A falling MP that is still positive means TP is still increasing. TP falls only when MP < 0.
• B. Average product has become zero: Wrong. AP stays positive as long as TP is positive.
• C. Diminishing returns has set in: Correct. A fall in MP is exactly the definition of diminishing returns.
• D. Increasing returns is operating: Wrong. Increasing returns means MP is rising, which is the opposite of what the question describes.

Step 4: Answer The correct option is C. Diminishing returns has set in.

Exam tip: Remember the MP-TP link:

• MP rising → TP rising at an increasing rate (increasing returns)
• MP falling but positive → TP rising at a decreasing rate (diminishing returns)
• MP negative → TP falling

Many students pick A because they confuse "MP falling" with "TP falling". Always check whether MP is merely falling or has become negative.