Gamma has $30,000 of capital per worker, while Omega has $7,500 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will increase output ________ in Gamma compared to Omega, holding other factors constant.

Question

Quizplus · Accepted Answer

Since Gamma starts out with more capital per worker, the marginal increase in worker output in Gamma is less than the marginal increase in Omega (where workers have much less capital to begin with).

Gamma Has $30,000 of Capital Per Worker, While Omega Has