High School

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If an increase in capital per worker leads to increased output per worker but by decreasing amounts as capital increases, this scenario illustrates:

a) Diminishing returns to capital
b) Increasing returns to scale
c) Constant returns to scale
d) Economies of scale

Answer :

If an increase in capital per worker leads to increased output but by smaller amounts with each increase in capital, this is known as diminishing returns to capital, a key concept in economics that describes the declining efficiency of capital inputs when other factors are constant. Hence the correct answer is option A.

If an increase in capital per worker leads to increased output per worker but by decreasing amounts as capital increases, this scenario illustrates diminishing returns to capital. This economic principle states that while increasing the quantity of capital can enhance productivity, each additional unit of capital adds less to output than the previous unit when other input factors are held constant. This concept is crucial in understanding the production function and the costs associated with different levels of production.

Economies of scale and diminishing marginal returns are related but distinct concepts. Economies of scale occur over the long run when all inputs are increased, potentially leading to lower average costs. In contrast, diminishing marginal returns happen in the short run when one input, such as labor, increases while other inputs, like capital, are fixed, leading to a decline in the output contribution of each additional unit of the variable input. Hence the correct answer is option A.

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