Scenario: Two economies, A and B, have identical aggregate production functions with diminishing returns. In both economies, capital and labor are equally important for production. Economy A has twice as many efficiency units of labor as economy B. Economy B has twice as much physical capital stock as economy A.
-Refer to the scenario above.Economy A has a higher GDP if ________.
A) its working population is bigger than economy B's working population
B) its population is better educated than economy B's population
C) its economy is not subject to the Law of Diminishing Marginal Product
D) it employs more advanced technology in production than does economy B

Question

Quizplus · Accepted Answer

Economy A will have a higher GDP if it employs more advanced technology, as this would increase productivity and output, overcoming the differences in capital and labor efficiency units.

Scenario: Two Economies, a and B, Have Identical Aggregate Production