Question

In the relationship depicted by the curve Productivity1, which of the following statements are true regarding the relationship between physical capital per worker and real GDP per capita for both countries?
a. These countries experience diminishing returns to physical capital per worker with technology and physical capital per worker being fixed.
b. These countries experience increasing returns to physical capital per worker with technology and human capital per worker being fixed. c. These countries experience increasing returns to physical capital per worker with physical and human capital per worker being fixed.
d. These countries experience diminishing returns to physical capital per worker with technology and human capital per worker being fixed.

Answer 1

Option D,  These countries experience diminishing returns to physical capital per worker with technology and human capital per worker being fixed

Explanation:

The curve which represents the relationship between physical capital per employee and production per employee illustrates the value of human capital per employee and technologies.

Both Albernia and Brittania have decreasing returns on physical capital as the same incremental rises in physical capital per employee in both countries — continuous job retention in human capital and technology — will lead in smaller and less actual GDP changes per employee.

So, Both human capital per worker and technology are held fixed. Yes, there are diminishing returns.