Country A and country B are the same except country A currently has a lower level of capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then
A)output in country A increases by more than in country B.
B)output in country A increases by the same amount as in country B.
C)output in country A increases by less than in country B.
D)None of the above is necessarily correct.

Question

Quizplus · Accepted Answer

Due to diminishing returns, the additional output from an increase in capital is higher when the initial level of capital is lower. Therefore, country A, with a lower initial capital, will experience a larger increase in output compared to country B.

Country a and Country B Are the Same Except Country