Suppose that the Australian economy initially uses 50 billion hours of labour to produce $5 trillion of real GDP.If 50 billion more hours are employed and Australia's real GDP increases by $4 trillion,

Question

Quizplus · Accepted Answer

The increase in output ($4 trillion) is less than the increase in labour input (50 billion hours), indicating diminishing returns to labour. If the production function exhibited increasing returns, we would expect a greater increase in output given the additional labour input. If it exhibited constant returns, we would expect a proportional increase in output given the proportional increase in labour input. The presence or absence of entrepreneurship is not relevant to the question. The slope of the production possibility frontier (PPF) cannot be determined from the information given.

Suppose That the Australian Economy Initially Uses 50 Billion Hours