Consider the following production function: . Which of the following is true about this production function?
A) More capital induces growth but at a decreasing rate.
B) As capital accumulation occurs, the marginal product of capital falls.
C) The iron logic of diminishing returns holds true with this production function.
D) Each of these statements describes an aspect of the given production function.

Question

Quizplus · Accepted Answer

Option A is correct as the production function shows diminishing marginal productivity of capital, which means that each additional unit of capital adds less to the production output than the previous unit. As capital increases, the growth rate slows down, i.e. the production function's slope flattens.

Option B is also correct, as it is an implication of diminishing marginal productivity of capital. The return of the additional unit of capital decreases as more capital is added.

Option C is also valid as the production function exhibits the typical "iron law of diminishing returns," which refers to the inevitable decrease in marginal output resulting from the addition of an extra factor of production after a certain level is reached.

Consider the Following Production Function