Diminishing returns to physical capital suggest that:

Question

Quizplus · Accepted Answer

Diminishing returns to physical capital means that as more physical capital (such as machines, equipment or infrastructure) is added to a fixed amount of human capital and technology, the additional units of physical capital will lead to smaller productivity gains. This implies that physical capital must be increased in a complementary way with other factors of production, such as human capital and technological progress, to achieve sustained economic growth. Option B is incorrect because physical capital increases do not lead to drops in productivity, but diminishing marginal returns. Option C is incorrect as it suggests a negative relationship between technological progress and productivity, which is not the case in most empirical studies. Option D is also incorrect because physical capital, human capital, and technology are all important drivers of economic growth, and the optimal mix of these factors will depend on the specific conditions and objectives of each economy.

Diminishing Returns to Physical Capital Suggest That