"When workers have a relatively small quantity of capital to use in producing goods and services,giving them an additional unit of capital increases their productivity by a relatively large amount." This statement
A)is an assertion that production functions have the property of constant returns to scale.
B)is consistent with the view that capital is subject to diminishing returns.
C)is inconsistent with the view that it is easier for a country to grow fast if it starts out relatively poor.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The statement indicates that workers have a relatively small amount of capital, which implies that they are operating in a region where capital is subject to diminishing returns. The fact that an additional unit of capital can increase their productivity by a relatively large amount suggests that they are operating in a region where the marginal return on capital is relatively high. This is consistent with the view that capital is subject to diminishing returns.

"When Workers Have a Relatively Small Quantity of Capital to Use