When both labor and capital are variable,both factors of production can exhibit diminishing marginal returns. As we move from A to C,there is diminishing returns to labor,and as we move from D to C,there is diminishing returns to capital.When both labor and capital are variable, both factors of production can exhibit diminishing marginal returns. As we move from A to C, there is diminishing returns to labor, and as we move from D to C, there is diminishing returns to capital