Question: Which of the following best describes the concept of \'diminishing returns\' in resource allocation? (2023)

Options:

1. Increasing resources leads to proportionate increases in output.
2. Adding more resources results in smaller increases in output after a certain point.
3. Resources should be allocated equally to maximize output.
4. The initial allocation of resources is always the most effective.

Correct Answer: Adding more resources results in smaller increases in output after a certain point.

Exam Year: 2023

Solution:

Diminishing returns refers to the principle that adding more resources results in smaller increases in output after a certain point, highlighting the need for careful allocation.