Question

A manufacturing company had been under pressure to increase profits, so it

began to produce additional goods. The company was encouraged by the
initial increases in revenue, even though profits per item produced were lower
than average. Still, total profits increased, so the company decided to make
another significant increase in production. This time, however, the profit per
item had decreased so much that the company made almost no extra profit
from the increase in production. This situation illustrates what concept?
A. Law of diminishing returns
O B. Cross-training
O C. Productivity analysis
D. Comparative advantage

Answer 1

A . Law of diminishing returns is the answer .
Because the law of diminishing returns argues. that the expansion of a business must always consider the demand and if it does not the graph will lower into the diminishing returns that is less and less profit for the firm.