Scenario: Red Country and Purple Country have identical aggregate production functions. The amount of physical capital stock available to each country is equal. Labor supply in Red Country is HR, while the labor supply in Purple Country is HP.

-Refer to the scenario above.Which of the following statements is a consequence of both countries' aggregate production function being identical?
A) Output will respond the same way to increases in the inputs.
B) Output will respond the same way to increases in the inputs given output is at the same level.
C) Output will respond the same way to increases in the efficiency units of labor but not to increases in the physical capital stock.
D) Output will respond the same way to increases in the physical capital stock but not to increases in the efficiency units of labor.

Question

Scenario: Red Country and Purple Country have identical aggregate production functions. The amount of physical capital stock available to each country is equal. Labor supply in Red Country is HR, while the labor supply in Purple Country is HP.
 
-Refer to the scenario above.Which of the following statements is a consequence of both countries' aggregate production function being identical?
A) Output will respond the same way to increases in the inputs. 
B) Output will respond the same way to increases in the inputs given output is at the same level. 
C) Output will respond the same way to increases in the efficiency units of labor but not to increases in the physical capital stock. 
D) Output will respond the same way to increases in the physical capital stock but not to increases in the efficiency units of labor.

Quizplus · Accepted Answer

If both countries have identical aggregate production functions, output will respond the same way to increases in inputs, provided that the output is at the same level.

Scenario: Red Country and Purple Country Have Identical Aggregate Production