Decreasing returns to capital (K)implies that a 4% increase in K will cause
A)a reduction in output per worker (Y / N).
B)a reduction in K / N.
C)Y to increase by exactly 4%.
D)Y to increase by less than 4%.
E) no change in Y / N.

Question

Quizplus · Accepted Answer

Decreasing returns to capital mean that the marginal product of capital (MPK) decreases as more capital is added to the production process. Therefore, a 4% increase in K will result in less than a 4% increase in output (Y), leading to option D being the best answer.

Decreasing Returns to Capital (K)implies That a 4% Increase in K