Question

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 __________.

Answer 1

Answer:

Output in country A increases by less than in country B.

Explanation:

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 output in country A increases by less than in country B because of the lower capital and However, due to diminishing returns to scale,If output increases by less than that proportional change in all inputs, there are decreasing returns to scale

Answer 2

Answer: output in country A increases by less than in country B.

Explanation: According to the scenario described, the only difference between country A and B is that country A currently has a lower level of capital. The law of diminishing returns argues that, at a certain point, increasing an input ln production with other inputs kept constant, will result in smaller or progressively smaller increase in output. Therefore both countries will witness progressively smaller increase in output. However, Country A which has a lower capital level compared to country B will witness a lesser increase in output than country B due to the level of available capital.