In the Solow model, if the first unit of capital increases output by one unit, then the second unit of capital will cause total output to
A) increase, but by less than one unit.
B) double.
C) remain the same as with one unit of capital.
D) increase exponentially.

Question

Quizplus · Accepted Answer

The Solow model assumes that there are diminishing returns to capital, which means that as the amount of capital increases, the marginal product of capital decreases. Therefore, the second unit of capital will increase output by less than one unit, but still cause an increase.

In the Solow Model, If the First Unit of Capital