Question

If the production function exhibits decreasing returns to scale in the steady state, an increase in the rate of population would lead to:______________. 1. no growth in total output or in output per worker. 2. growth in total output but no growth in output per worker. 3. growth in total output but a decrease in output per worker. 4. growth in total output and growth in output per worker

Answer 1

3. growth in total output but a decrease in output per worker

Step-by-step explanation:

A production function depicts a functional relationship between production and factors of production such as land, labor, capital and entrepreneur.

In the long run, all factors of production are variable. Herein, an increase in factors of production leads to less than proportionate increase in a firm's output, it is referred to as decreasing returns to scale.

An increase in the population would lead to rise in the availability of a factor of production i.e labor. But such an increase would only increase the total output and output per worker won't increase and would keep falling owing to the operation of decreasing returns to scale.