Figure 12-1. On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L).
-Refer to Figure 12-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?
A)In the long run, a higher saving rate leads to a higher growth rate of productivity.
B)In the long run, a higher saving rate leads to a higher growth rate of income.
C)Returns to capital become increasingly smaller as the amount of capital per worker increases.
D)All of the above are correct.

Question

Figure 12-1. On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). 
-Refer to Figure 12-1. The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?
A)In the long run, a higher saving rate leads to a higher growth rate of productivity. 
B)In the long run, a higher saving rate leads to a higher growth rate of income. 
C)Returns to capital become increasingly smaller as the amount of capital per worker increases. 
D)All of the above are correct.

Quizplus · Accepted Answer

The shape of the curve shows that the relationship between capital per worker and output per worker is not linear, but rather exhibits diminishing marginal returns to capital. As more capital is added per worker, the increase in output per worker becomes smaller and smaller. Therefore, statement C is the correct choice. Statements A and B are not supported by the graph alone.