Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker:
A) more in Highland.
B) more in Lowland.
C) by the same amount in Highland and Lowland.
D) in Highland, but not in Lowland.

Question

Quizplus · Accepted Answer

Given the diminishing marginal product of capital, an extra unit of capital per worker increases output per worker more in Lowland, where the level of capital per worker is lower, than in Highland, where the level of capital per worker is higher.

Two Economies Are Identical Except That the Level of Capital