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23 January, 08:10

All else equal, if there are diminishing returns, then what happens to productivity if both capital and labor increase?

a. Productivity will definitely fall.

b. Productivity will definitely be unchanged.

c. Productivity will definitely rise.

d. None of the above are necessarily correct.

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  1. 23 January, 09:26
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    a. Productivity will definitely fall.

    Explanation:

    The productivity of a firm is directly associated with the type of return on inputs. If marginal returns on inputs are increasing, the increase in an input quantity will increase output more than proportionally. If the marginal returns of the inputs are constant, for each increase in the amount of inputs, there will be an increase of one unit produced. If the marginal return on inputs is decreasing, the increase in input quantity will lead to a less than proportional increase in output. Thus, the increase of one unit of capital and labor will generate less than one unit produced. Thus, it will be necessary to increase more than one unit of each input to produce one unit of good, that is, productivity will be decreasing.
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