DECA Hospitality and Tourism Cluster Practice Exam

Which of the following is decreasing when a business's marginal cost of producing a good is increasing?

1. Marginal product

2. Variable resource

3. Personal income

4. Employment rate

The correct answer is: Marginal product

When a business's marginal cost of producing a good is increasing, it typically indicates that the additional cost of producing one more unit of that good is rising. This situation often arises when the business is experiencing diminishing returns, which occurs when additional input leads to progressively smaller increases in output. The marginal product, which refers to the additional output generated by employing one more unit of a resource or input, will be decreasing in this scenario. As the marginal cost rises, it signifies that each additional unit produced is less efficient in utilizing resources, leading to a drop in the marginal product. This relationship highlights how increasing costs can impact production efficiency, ultimately making it less beneficial for a business to increase its output beyond a certain level. While the other options relate to various aspects of business operations and economic indicators, they do not directly connect to the relationship between marginal cost and marginal product as described. Therefore, the understanding of how rising marginal costs correlates with declining marginal productivity is key to grasping this economic principle.