Answer :
The per-worker production function exhibits diminishing returns, meaning that each additional unit of capital leads to smaller and smaller increases in output. This principle reflects a flattening curve on a production graph and applies to the broader economy as well as to individual firms with constant capital.
Therefore the correct option is c. Exhibits diminishing returns
If an increase in capital per worker leads to increased output per worker but by decreasing amounts as more capital is added, this indicates that the per-worker production function exhibits diminishing returns. This concept applies to scenarios where, after a certain point, each additional unit of capital results in a smaller increase in output than the previous unit. This is often visualized in a production function graph where the curve flattens as capital increases, reflecting the decreasing marginal gains.
In the context of a firm, diminishing marginal returns can occur when adding more workers leads to less additional output per worker, assuming the firm's capital or equipment remains constant. As each worker is added, the contribution to total production becomes smaller due to the fixed amount of capital. Hence, the firm also experiences diminishing marginal returns similar to the broader economy.
The Law of Diminishing Returns is a fundamental principle in the production theory which affects the aggregate production function, as it shows total output increasing but at a decreasing rate with the addition of more input, assuming other factors are constant.
