The following figure shows two aggregate production functions.

-Refer to the figure above.Which of the following statements hold true regarding aggregate production function 2?
A) Up to point A, the law of diminishing marginal product holds for human capital.
B) Up to point A, the law of diminishing marginal product holds for the physical capital stock.
C) Up to point A, increases in the physical capital stock lead to decreased output.
D) Up to point A, increases in human capital lead to constant aggregate output.

Question

The following figure shows two aggregate production functions.
 
-Refer to the figure above.Which of the following statements hold true regarding aggregate production function 2?
A) Up to point A, the law of diminishing marginal product holds for human capital. 
B) Up to point A, the law of diminishing marginal product holds for the physical capital stock. 
C) Up to point A, increases in the physical capital stock lead to decreased output. 
D) Up to point A, increases in human capital lead to constant aggregate output.

Quizplus · Accepted Answer

Aggregate production function 2 shows that up to point A, there is a diminishing marginal product of physical capital, meaning that as the stock of physical capital increases, the extra output produced with each additional unit of capital decreases. There is no information given about the role of human capital or the relationship between physical capital and aggregate output.

The Following Figure Shows Two Aggregate Production Functions