Chapter 38, Problem 2FRQ

a)

To determine

To find:

Graphical representation of C’s productivity curve.

Explanation of Solution

This is a case of constant returns to scale. As both inputs and output level of production is same, the productivity growth seems like this:

  

Economics Concept Introduction

Productivity curve is a graphical representation showing level of production with different level of inputs.

b)

To determine

Graphical representation of C’s productivity curve.

Explanation of Solution

This is a case of increasing returns to scale. As the input goes in production function, the level of production increases at an increasing rates. As the output increases more than the level of input introduced in the production function, then output is said to be increasing returns to scale.

  

Economics Concept Introduction

Productivity curve is a graphical representation showing level of production with different level of inputs.

c)

To determine

Graphical representation of C’s productivity curve.

Explanation of Solution

As the physical capital destroyed, keeping other things constant, the level of output production decreases. The output production function shifts downward, showing the fall in the productivity level of output.

  

Economics Concept Introduction

Productivity curve is a graphical representation showing level of production with different level of inputs.

d)

To determine

Graphical representation of C’s productivity curve.

Explanation of Solution

The productivity curve of C shifts upward as the level of production increases due to education. As education level increases, human capital level increases, this leads to usage of existing capital, thereby increasing the level of productivity.

  

Economics Concept Introduction

Productivity curve is a graphical representation showing level of production with different level of inputs.