Scenario: Tree Country has a population of 18,000 people, of whom two-thirds are part of the workforce. The country's only asset is wood, where K = 18,000. The country only produces wooden furniture. In the figure below, Y stands for GDP, and H equals efficiency units of labor.

-Refer to the scenario above.Assume Tree Country's economy has constant returns to scale.If its population doubles and all other inputs remain the same,how would GDP change?
A) GDP would stay the same.
B) GDP would increase.
C) GDP would increase by exactly 50 percent.
D) GDP would decrease by exactly 50 percent.

Question

Scenario: Tree Country has a population of 18,000 people, of whom two-thirds are part of the workforce. The country's only asset is wood, where K = 18,000. The country only produces wooden furniture. In the figure below, Y stands for GDP, and H equals efficiency units of labor.
 
-Refer to the scenario above.Assume Tree Country's economy has constant returns to scale.If its population doubles and all other inputs remain the same,how would GDP change?
A) GDP would stay the same. 
B) GDP would increase. 
C) GDP would increase by exactly 50 percent. 
D) GDP would decrease by exactly 50 percent.

Quizplus · Accepted Answer

Since Tree Country's economy has constant returns to scale, doubling the population should lead to a proportional increase in output. Therefore, GDP would increase.

Scenario: Tree Country Has a Population of 18,000 People, of Whom