Countries A and B have similar levels of technology and physical capital, but country B has twice as much human capital as country A. If diminishing returns apply to all inputs, country B should grow at ______ country A.
A) the same rate as
B) more than twice the rate of
C) a lower rate than
D) twice the rate of

Question

Quizplus · Accepted Answer

Diminishing returns imply that as more input is added, the marginal product of that input decreases. Since both countries have similar levels of technology and physical capital, the marginal product of extra human capital will be decreasing in country B because it already has twice the human capital of country A. Therefore, country B will grow at a lower rate than country A.

Countries a and B Have Similar Levels of Technology and Physical