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Suppose that the per worker production function for the United States exhibits diminishing returns to physical capital. If the government decides to no longer mandate that employers provide their employees with health benefits, and it leads to workers being less productive while at work, what should happen to the amount of capital per worker and the amount of output per worker, ceteris paribus?

Answer :

If the government's decision to no longer mandate health benefits reduces worker productivity in the presence of a production function with diminishing returns to physical capital, it would likely result in a decrease in both the amount of capital per worker and the amount of output per worker, assuming other factors remain constant.

  • If the Per Worker Production function in the United States exhibits diminishing returns to physical capital, and the government decides to no longer mandate health benefits, leading to reduced worker productivity, there are several effects on the amount of capital per worker and output per worker ceteris paribus (assuming other factors remain constant):
  • Impact on Capital per Worker:
  • With decreased worker productivity due to reduced health benefits, the demand for labor may decrease.
  • This reduction in labor demand can lead to a decrease in the rate of capital accumulation. Firms may invest less in physical capital if their workers are less productive.
  • Impact on Output per Worker:
  • Reduced productivity implies that, ceteris paribus, each worker produces less output for the same amount of capital.
  • As a result, output per worker is likely to decrease since workers are less efficient.
  • In summary, if the removal of health benefits leads to decreased worker productivity, it is expected to lead to a decrease in both the amount of capital per worker and the amount of output per worker ceteris paribus.

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