Scenario: Country X and Country Y have identical aggregate production functions as shown in the figure below. The amount of physical capital stock available to each country is also equal. However, the labor supply for Country X is HX, while the labor supply for Country Y is HY.

-Refer to the scenario above.A one-unit increase in the efficiency units of labor will lead to ________ in output in Country X than in Country Y.
A) a larger increase
B) a smaller increase
C) a larger decrease
D) a smaller decrease

Question

Scenario: Country X and Country Y have identical aggregate production functions as shown in the figure below. The amount of physical capital stock available to each country is also equal. However, the labor supply for Country X is HX, while the labor supply for Country Y is HY.
 
-Refer to the scenario above.A one-unit increase in the efficiency units of labor will lead to ________ in output in Country X than in Country Y.
A) a larger increase 
B) a smaller increase 
C) a larger decrease 
D) a smaller decrease

Quizplus · Accepted Answer

Since Country X has a steeper slope for its production function, a one-unit increase in efficiency units of labor will lead to a larger increase in output in Country X than in Country Y. This indicates that Country X is more productive and efficient than Country Y.

Scenario: Country X and Country Y Have Identical Aggregate Production