Consider an aggregate production function Y = F(K, L)that displays diminishing marginal returns to labour. If the amount of capital is held constant and the amount of labour used in production is increasing, then

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Quizplus · Accepted Answer

Diminishing marginal returns to labour mean that each additional unit of labour will add less to total output than the previous unit of labour. Therefore, as the amount of labour used in production increases while capital is held constant, the production function will exhibit decreasing marginal returns to labour, indicating that each additional unit of labour adds less to total output than the previous unit of labour. This rules out options A, B, and E. Option C, which suggests increasing returns to scale, is not applicable in this situation since we are holding capital constant. Therefore, option D is the best choice.

Consider an Aggregate Production Function Y = F(K, L)that Displays