Country A and country B both increase their capital stock by one unit.Output in country A increases by 10 while output in country B increases by 8.Other things the same,diminishing returns implies that country A is
A)richer than Country B.If Country A adds another unit of capital,output will increase by more than 10 units.
B)richer than Country B.If Country A adds another unit of capital,output will increase by less than 10 units.
C)poorer than Country B.If Country A adds another unit of capital,output will increase by more than 10 units.
D)poorer than Country B.If Country A adds another unit of capital,output will increase by less than 10 units.

Question

Quizplus · Accepted Answer

Diminishing returns implies that as more and more units of capital are added, the additional output generated will decrease. Since adding one unit of capital in country A led to an increase in output by 10 units, but adding another unit of capital will generate a smaller increase in output (less than 10 units), Country A is experiencing diminishing returns. Therefore, it is poorer than Country B, which added one unit of capital and increased output by 8 units.

Country a and Country B Both Increase Their Capital Stock