Question

All else equal, if there are diminishing returns and constant returns to scale, then what happens to productivity if capital and labor both increase but capital increases by more?

a. Productivity will definitely fall.b. Productivity will definitely be unchanged.c. Productivity will definitely rise.d. None of the above are necessarily correct.

Answer 1

None of the given options are necessarily correct.

Option: (D)

Explanation:

• The fluctuations in the rate or amount of production through business are subject to change in the factors of production involved.
• The complications of possibilities presented in the given case can culminate in many varied outputs that cannot be determined clearly.
• Although, it is true that with a change in the degree of involvement of various factors of production, the output is more vulnerable to change.