Question

Diminishing returns to physical capital means that, when the amount of human capital per worker and the state of technology are held fixed, each increase in the amount of physical capital per worker leads to______________

Answer 1

The answer that fills the blank is: a smaller increase in the marginal product of labor.

Step-by-step explanation:

The marginal product of labor is the additional production that results from the addition of an input unit, assuming that all other variables remain constant. Suppose you have a factory full of machines, as well as all the raw materials you need to make appliances. If you hire a worker to operate a machine, he will be able to produce 10 devices in one work day. If you hire another worker (if you add an input unit), your workers together will produce 20 devices. In this way, the second worker will have a marginal product of 10, because his participation resulted in an additional development of 10 production units. So if the amount of human capital and technology are held fixed then this marginal product of labor will have a smaller increase.