Country A has a smaller stock of capital than Country B,but the supply of labor in both countries is equal.What does this imply?
A) The increase in output due to the use of an additional unit of capital will be smaller in Country A than in Country B.
B) The increase in output due to the use of an additional unit of capital will be larger in Country A than in Country B.
C) The use of an additional unit of capital will increase output in Country A only if there is an increase in the total efficiency units of labor.
D) The use of an additional unit of capital will increase output in Country B only if there is an increase in the total efficiency units of labor.

Question

Quizplus · Accepted Answer

The law of diminishing returns implies that when a factor of production (capital, in this case) is increased while other factors (like labor) are held constant, the additional output (marginal product) generated from the extra unit of the factor decreases as more of that factor is added. Since Country A has a smaller stock of capital, the marginal product of an additional unit of capital is likely to be higher in Country A than in Country B, where capital is more abundant.

Country a Has a Smaller Stock of Capital Than Country