Two economies, A and B, have identical aggregate production functions with diminishing returns. In both economies, capital and labor are equally important for production. Economy A has twice as many efficiency units of labor as economy B. Economy B has twice as much physical capital stock as economy A.
-Refer to the scenario above. If you were to draw the aggregate production functions for economies A and B, holding physical capital stock constant at each county's given level, you would draw ________.
A) one aggregate production function, where economy B?s level of production is greater than economy A?s level of production
B) two separate aggregate production functions, where the one for economy B lies above the one for economy A
C) one aggregate production function, where both economies? output are at the same level
D) two separate aggregate production functions where the one for economy A lies above the one for economy B

Question

Quizplus · Accepted Answer

Given that both economies have identical aggregate production functions with diminishing returns and capital and labor are equally important, the fact that Economy A has twice as many efficiency units of labor and Economy B has twice as much physical capital means their production capabilities balance out. Therefore, their outputs would be at the same level on the same aggregate production function.

Two Economies, a and B, Have Identical Aggregate Production Functions