According to the law of diminishing returns, the lower the capital stock, the higher the rate of return to capital.

Question

Quizplus · Accepted Answer

According to the law of diminishing returns, as more units of a variable input (such as capital) are added to a fixed input (such as land or labor), the output will eventually increase at a decreasing rate. Therefore, with a lower capital stock, adding more capital may lead to a relatively larger increase in output, resulting in a higher rate of return to capital.

According to the Law of Diminishing Returns, the Lower the Capital