The per-worker production function in the Solow model assumes
A)constant returns to scale and increasing marginal productivity of capital.
B)constant returns to scale and diminishing marginal productivity of capital.
C)increasing returns to scale and diminishing marginal productivity of capital.
D)decreasing returns to scale and diminishing marginal productivity of capital.

Question

Quizplus · Accepted Answer

The per-worker production function in the Solow model assumes constant returns to scale, meaning that if the inputs are increased by a certain percentage, the output will also increase by the same percentage. However, it assumes diminishing marginal productivity of capital, meaning that as more capital is added, the additional output produced by each unit of capital decreases. This is because the other inputs, such as labor and technology, are held constant while capital is being increased, leading to a point where the addition of more capital is not as effective in boosting output. Therefore, choice B is the best answer.

The Per-Worker Production Function in the Solow Model Assumes