Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP per hour worked by $500.If capital per hour worked increases further to $25,000,by how much would you expect real GDP per hour worked to increase if there are diminishing returns?
A)by less than $500
B)by exactly $500
C)by more than $500 but less than $5,000
D)by more than $5,000 but less than $20,000

Question

Quizplus · Accepted Answer

Diminishing returns mean that each additional unit of capital per hour worked will add less and less to real GDP per hour worked. Therefore, the increase in real GDP per hour worked from $20,000 to $25,000 will be less than $500. Option A is the best choice because it represents an increase in real GDP per hour worked, but less than the previous increase from $15,000 to $20,000.

Suppose That an Increase in Capital Per Hour Worked from $15,000