Question

Use the production function graph to answer the questions. Calculate the marginal product of the first unit of capital first unit: units Y =f(K) Calculate the marginal product of the second unit of capita o 4 second unit: units What happens to the marginal product of each additional unit of capital, all else equal? 0 1 2 3 456 7 8 9 10 Capital (K) Capital decreases output at a diminishing rate. Capital increases output at a diminishing rate. Capital decreases output at an increasing rate. O Capital increases output at an increasing rate.

Answer 1

The Marginal Product (MP) of the first unit of capital can be calculated as follows Change in output Change in capital Total output at 1st unit - Total output at 0 unit Total capital at 1st unit - Total capital at 0 unit 2-0 1-0 MP= Therefore, the marginal product at the first unit of capital is 21 The Marginal Product (MP) of the second unit of capital can be calculated as follows Change in output Change in capital Total output at 2nd unit Total output at 1st unit Total capital at 2nd unit - Total capital at 1st unit 3-2 MP= -1 Therefore, the marginal product at the second unit of capital is 1 The graph is showing as increase in capital, slope of curve keeps on decreasing Th Thus, option b is correct us, capital increases output at a diminshing rate