For three years, there was no technological change in Longland but capital per hour of labour increased from $10 to $20 to $30 and real GDP per hour of labour increased from $3.80 to $5.70 to $7.13. Then in the fourth year, capital per hour of labour remained constant but real GDP per hour of labour increased to $10. Longland ________ experience diminishing returns because ________.

Question

Quizplus · Accepted Answer

The fact that real GDP per hour of labour increases but by smaller amounts as capital per hour of labour increases indicates that Longland is experiencing diminishing returns. This is further supported by the fact that in the fourth year, when capital per hour of labour does not change, real GDP per hour of labour experiences a larger increase. Therefore, choice B is the best answer.

For Three Years, There Was No Technological Change in Longland