Concept:Diminishing returns sets in when each extra unit of a variable factor adds less to total output than the previous unit added.
Explanation:Marginal product is the change in total output due to one additional unit of the variable factor.
A fall in marginal product means the extra output from the new unit is smaller than before.
This indicates that the firm has reached the stage of diminishing returns.
At this stage, total product may still be increasing, but it increases at a slower rate.
Total product does not necessarily start declining, and average product does not become zero.
Thus, the correct interpretation is that diminishing returns has already set in.
Answer:Diminishing returns has set in.