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
E)by more than $20,000

Question

Quizplus · Accepted Answer

Diminishing returns means that each additional unit of capital will lead to a smaller increase in output. Therefore, the increase in real GDP per hour worked when capital per hour worked increases from $20,000 to $25,000 will be less than $500, but it will still be positive. Option A states that the increase will be less than $500, which is the most likely outcome.

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