Scenario: Tree Country has a population of 18,000 people, of whom two-thirds are part of the workforce. The country's only asset is wood, where K = 18,000. The country only produces wooden furniture. In the figure below, Y stands for GDP, and H equals efficiency units of labor.

-Refer to the scenario above.Again,assume Tree Country's economy has constant returns to scale.All inputs and human capital double,but technology remains the same.Which of the following would double?
A) Neither productivity nor output
B) Productivity but not output
C) Output but not productivity
D) Both output and productivity

Question

Scenario: Tree Country has a population of 18,000 people, of whom two-thirds are part of the workforce. The country's only asset is wood, where K = 18,000. The country only produces wooden furniture. In the figure below, Y stands for GDP, and H equals efficiency units of labor.
 
-Refer to the scenario above.Again,assume Tree Country's economy has constant returns to scale.All inputs and human capital double,but technology remains the same.Which of the following would double?
A) Neither productivity nor output 
B) Productivity but not output 
C) Output but not productivity 
D) Both output and productivity

Quizplus · Accepted Answer

Under constant returns to scale, if all inputs including human capital double while technology remains constant, output would also double. However, productivity, which is the output per unit of input, would remain the same because both the numerator (output) and the denominator (input) have doubled.

Scenario: Tree Country Has a Population of 18,000 People, of Whom