Final answer:
Yes, it is necessary for this equation to allow roe to have a diminishing effect on log(salary). The Law of Diminishing Marginal Product explains that as more workers are added, the marginal product initially increases, but eventually decreases. Diminishing marginal productivity occurs due to fixed capital.
Step-by-step explanation:
Yes, it is necessary for this equation to allow roe to have a diminishing effect on log(salary).
The Law of Diminishing Marginal Product states that as we add more workers, the marginal product initially increases, but eventually decreases. This concept is similar to diminishing marginal utility in consumer choice. Both concepts fall under the general concept of diminishing marginal returns.
Diminishing marginal productivity occurs because of fixed capital. In this context, it means that adding more workers eventually leads to a diminishing effect on output. Therefore, it is necessary for the equation to account for this diminishing effect.