Question

Alpha has $40,000 of capital per worker, while Beta has $5,000 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will ______ in Alpha compared to Beta, holding other factors constant.

Answer 1

Answer:

lower return

Explanation:

an additionl unit of capital will have a lower return  in Alpha compared to Beta

The diminishing return theory explains that if a factor is added, while the other remains the same, the return for each additional quantity added will be lower. So if both countries have the same amount of factor, Alpha adding more capital will not have the same return as doing it in Beta

ΔCapital/(40,000 + labor + land)  <   ΔCapital/(5,000 + labor + land)

That's because the divisor ir greater in Alpha it is required a higher amount of capital to produce the same return.