Country A has a smaller stock of capital than Country B, but the supply of labor...
Country A has a smaller stock of capital than Country B, but the supply of labor in both countries is equal. What does this imply?
A) The increase in output due to the use of an additional unit of capital will be smaller in Country A than in Country B.
B) The increase in output due to the use of an additional unit of capital will be larger in Country A than in Country B.
C) The use of an additional unit of capital will increase output in Country A only if there is an increase in the total efficiency units of labor.
D) The use of an additional unit of capital will increase output in Country B only if there is an increase in the total efficiency units of labor.
Homework Answers
Option B.
- This implies that the increase in output due to the use of an additional unit of capital will be larger in country A than in country B.
- According to the question, Even though country A has smaller capital stock when compared to country B, Its supply of labour equals the supply of labour in country B.
- This is in accordance with the concept of marginal productivity of capital which states that, when additional units of capital are employed, the amount of output increases.
- With increased production, the supply of labour also increases, hence the supply of labour is equal in both the country's even when the country A has smaller stock of capital.
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