Question

An aggregate production function exhibits diminishing returns to technology when, holding the amount of human capital per worker and the state of technology fixed, each successive increase in the amount of physical capital per worker leads to a smaller increase in productivity.
1. True
2. False

Answer 1

Answer:

True

Explanation:

The law of diminishing returns is used to describe a point where profit level is less than what was invested. Either money or energy.

This occurs when one or more factors of production are held fixed. Since state of technology and amount of human capital are held fixed, it has caused the adjustment of the factors of production to be disturbed.

This will then cause productivity not to increase at increasing rates since increasing the amount of physical capital gives smaller increase in productivity.