A firm has two factories, one twice as large as the second. As the number of workers at each factory increases, which factory will experience diminishing returns first?

Answer 1

The smaller of the two factories will begin to see diminishing returns first. That is because they will have exhausted the capacity of the fixed factor of production(i.e. the factory) sooner. In other words, production will reach its maximum level because the factory only has the capacity for X output so returns will dwindle with each additional input of labor.