When capital is included in the production function,

Question

Quizplus · Accepted Answer

Including capital in the production process allows for more efficient production, which leads to more output with the same amount of labor. This is known as the principle of diminishing marginal returns, which means that each additional unit of capital added to the production process leads to a smaller increase in output. Therefore, including capital in the production function leads to increasing returns to labor.

When Capital Is Included in the Production Function