Diminishing returns to physical capital suggests that:

Question

Quizplus · Accepted Answer

The law of diminishing returns to physical capital states that when the amount of human capital per worker and the state of technology are constant, the productivity increases by additional units of physical capital decreases with each additional unit. In other words, the increase in physical capital leads to smaller increases in productivity. Option B is incorrect as physical capital increases do not lead to drops in productivity with fixed human capital and technology. Option C is incorrect because technological progress leads to an increase in productivity. Option D is also incorrect because physical capital needs to increase along with human capital and technology for growth to occur, but at a slower rate due to diminishing returns.

Diminishing Returns to Physical Capital Suggests That