Question

13. Diminishing returns to physical capital suggests that: A) at some point, increasing the amount of physical capital per worker is not worth the cost of the additional amount of capital. B) after some point, increasing the amounts of physical capital per worker will lead to decreases in productivity. C) increasing the amount of physical capital per worker is always worth the cost of the capital. D) there are increasing returns to technology and human capital.

Answer 1

Answer:

C) increasing the amount of physical capital per worker is always worth the cost of the capital.

Answer 2

Answer:

The correct answer is letter "A": at some point, increasing the amount of physical capital per worker is not worth the cost of the additional amount of capital.

Explanation:

The diminishing returns to physical capital law state that adding physical capital at a certain point will increase productivity but at smaller rates, considering that technology and human capital remain at the same level. This is caused because, at a certain point, entities will not know what to do with the additional capital obtained, therefore the costs of adding one more unit of that physical capital will not be the same as the costs of the capital added used at full efficiency.