Q28 Suppose that the economies of Chapel Hill and Durham are the same except tha

Question

Q28

Suppose that the economies of Chapel Hill and Durham are the same except that Chapel Hill currently has more capital. Assume both economies have diminishing returns. Holding other factors constant, if both Chapel Hill and Durham increase their capital by 1,000 units then

output in Chapel Hill increases by more than in Durham.

output in Chapel Hill increases by the same amount as in Durham.

output in Chapel Hill increases by less than in Durham.

we cannot determine which economy has the bigger increase in output.

output in Chapel Hill increases by more than in Durham.

output in Chapel Hill increases by the same amount as in Durham.

output in Chapel Hill increases by less than in Durham.

we cannot determine which economy has the bigger increase in output.

Explanation / Answer

Both the economies hav diminishing returns which means when input is increased by an amount output increases at a lesser amount than the increase of input. Thus the rate of return shows the rate of change in output for a given change in the inputs. In the given question the rate of change ( or the diminishing returns rate) is not given and thus it is not possible to compare the rate of change in output within the two economies.

d. we cannot determine which economy has the bigger increase in output.

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