Chapter 38, Problem 1FRQ

a.

To determine

To draw: The productivity graph showing diminishing returns to physical capital.

Explanation of Solution

  

Graph 1

The above graph is showing diminishing returns if physical capital per worker is increased.

Economics Concept Introduction

Aggregate production function: This function is used to depict how productivity is dependent on the quantity of physical and capital workers along with technology.

b.

To determine

The indications of the productivity curve about diminishing returns to physical capital.

Explanation of Solution

The graph shown below indicates that the increase in physical capital is increasing real GDP per worker at a slower pace. The upward-sloping curve is showing aggregate production function. In other words, an increase in physical capital per worker will contribute less than the increase in physical capital per worker to the real GDP.

  

Graph 2

Economics Concept Introduction

Aggregate production function: This function is used to depict how productivity is dependent on the quantity of physical and capital workers along with technology.

c.

To determine

To draw: Graph showing the effect on technological progress.

Explanation of Solution

  

Graph 3

Productivity will be increased if technological advancement takes place.

Economics Concept Introduction

Aggregate production function: This function is used to depict how productivity is dependent on the quantity of physical and capital workers along with technology.

d.

To determine

To determine: The effect on human capital.

Explanation of Solution

In the productivity graph, the human capital per worker will remain constant. This will increase productivity if technological progress is ensured.

The effect of human capital and technological progress on real GDP will be positive as real GDP will increase if human capital is fixed along with technological progress.

Economics Concept Introduction

Aggregate production function: This function is used to depict how productivity is dependent on the quantity of physical and capital workers along with technology.