Question

If Galaxia has a GDP that is 10 times larger than Myopia, which country would likely have greater marginal returns to capital based on the law of diminishing returns to capital

Answer 1

Myopia

Step-by-step explanation:

The law of marginal returns states that as the total amount of any production factor increases, the output per unit of that factor will start to decrease. In other words, the marginal output or return from that factor will decrease. E.g. if you invest $100 in a small business, you will require a very high rate of return. If instead, you invest $1,000 in corporate bonds, you will only obtain moderate to low yields.

In this case, $1,000 invested in Myopia (smaller economy) should return a higher yield than $1,000 invested in Galaxia. Also, the $1,000 invested in Myopia will have a larger economic effect than the $1,000 invested in Galaxia.