When diminishing returns begin

Diminishing marginal returns begins at the point where each added worker starts adding less output than the worker before: marginal product of labor reaches its peak and starts to fall.

Marginal cost is the mirror image of that. If labor is the only variable input and each worker earns the wage W, then MC = W / MPL, the wage divided by the marginal product of labor.

While MPL is rising, each extra unit of output takes less labor, so MC falls. The moment MPL peaks and starts to decline, each extra unit takes more labor, so MC bottoms out and starts to rise. So the start of diminishing returns and the low point of marginal cost are the same moment, seen from two sides.

Each choice

• A. AVC does eventually rise, but only after MC climbs above it. At the onset of diminishing returns MC is still below AVC, so AVC is still falling. This mixes up marginal and average.
• B. Average product falls only once marginal product drops below it. Right when diminishing returns start, MP is at its peak and still above AP, so AP keeps rising for a while.
• C. Total product keeps rising as long as marginal product is positive. Falling total output is negative returns, a later stage that a student may confuse with diminishing returns.
• D (correct). Marginal cost turns up at the same point marginal product turns down.
• E. ATC is the last of these to turn up, after MC rises above it. Starting diminishing returns does not mean average total cost is already increasing.