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In practice, it is very rare to see input combinations that exhibit increasing returns for any factor. With increasing returns to a factor, an industry would come to be dominated by one very large producer—and this is seldom the case. Input combinations in the range of diminishing returns are commonly observed. If, for example, four CPAs could process 2.8 returns per hour, then the marginal product of the fourth CPA (MPCpAA=4 = 0.4) would be less than the marginal product of the third CPA (MPcpa=3 = 1.4) and diminishing returns to the CPA labor input would be encountered.

The irrationality of employing inputs in the negative returns range, beyond X3 in Figure 7.3, can be illustrated by noting that adding a sixth CPA would cause total output to fall from 3.0 to 2.7 returns per hour. The marginal product of the sixth CPA is -0.3 (MPcpa=6 = -0.3), perhaps because of problems with coordinating work among greater numbers of employees or limitations in other important inputs. Would the firm pay an additional employee when employing that person reduces the level of output? Obviously not: It is irrational to employ inputs in the range of negative returns.

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