A small economy increased its capital per hour worked (K/L)from $40,000 to $50,000.As a result,real GDP per worker (Y/L)grew from $20,000 to $25,000.If the economy increases its capital per hour worked by another $10,000 to $60,000,but there is no change in technology,by how much more and in what direction will output per worker change?

Question

Quizplus · Accepted Answer

The economy exhibits diminishing returns to capital, meaning that as more capital is added without a change in technology, the additional output generated per worker decreases. Therefore, increasing capital from $50,000 to $60,000 will increase output per worker by less than the previous $5,000 increase.

A Small Economy Increased Its Capital Per Hour Worked (K/L)from