What effect does employing a fixed amount of capital have on production as variable inputs are increased?

Employing a fixed amount of capital while increasing variable inputs results in diminishing returns due to the principle of diminishing marginal returns. This principle states that as the quantity of one factor of production (in this case, variable inputs) is increased while holding other factors (such as capital) constant, the additional output produced by each additional unit of the variable input will eventually decrease.

Initially, increasing the variable inputs may lead to more efficient use of the fixed capital, leading to increased output. However, as more and more variable inputs are added, there comes a point where the fixed capital cannot accommodate the increased variable inputs effectively. This saturation point results in less additional output per unit of the variable input. Thus, while production may increase, the rate of that increase slows down, illustrating diminishing returns.

In contrast, other options do not accurately explain the relationship. For instance, total variable costs do not necessarily drop because increasing variable inputs often leads to higher variable costs, not lower. Constant returns to scale refers to when both inputs increase proportionately and output increases equally, which is not the case here since only one factor (the variable input) is being increased. Lastly, the idea that marginal products consistently increase is incorrect, as marginal products will eventually decline due to the limitation