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

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Quizplus · Accepted Answer

The increase in input (labor) by 50 billion hours led to an increase in output (real GDP) by only $4 trillion, which is lower than the initial increase of $5 trillion when the first 50 billion hours were employed. This indicates that the production function exhibits diminishing returns to labor, meaning that the marginal product of labor is decreasing as more labor is added to the production process.

Suppose That the Australian Economy Initially Uses 50 Billion Hours