The following figure shows two aggregate production functions.

-Refer to the figure above.What does the slope of the aggregate production function 2 between the origin and point A imply?
A) The returns for increases in the physical capital stock are decreasing.
B) The returns for increases in the physical capital stock are increasing.
C) The returns for increases in the physical capital stock are negative.
D) The returns for increases in the physical capital stock are first positive and then negative.

Question

The following figure shows two aggregate production functions.
 
-Refer to the figure above.What does the slope of the aggregate production function 2 between the origin and point A imply?
A) The returns for increases in the physical capital stock are decreasing. 
B) The returns for increases in the physical capital stock are increasing. 
C) The returns for increases in the physical capital stock are negative. 
D) The returns for increases in the physical capital stock are first positive and then negative.

Quizplus · Accepted Answer

The slope of the aggregate production function between the origin and point A represents the marginal product of capital. A decreasing slope implies that as more physical capital is added, the additional output produced from each additional unit of capital decreases, indicating decreasing returns to the physical capital stock.

The Following Figure Shows Two Aggregate Production Functions