Answer :
Final answer:
Increases in capital per worker result in increased output per worker but at a decreasing rate which is termed diminishing marginal returns and indicates that the production function is not linear. The correct answer is option b).
Explanation:
If increases in capital per worker lead to increased output per worker, but by decreasing amounts as capital increases, the per-worker production function exhibits diminishing marginal returns. This is a classic example of capital deepening where additional capital per worker leads to higher productivity, but the rate of increase in productivity slows down as more and more capital is added.
From the information provided, we see that the production function is not linear, as a linear function would imply constant increases in output for additional capital. Instead, the output increases at a decreasing rate, illustrating the diminishing marginal returns to capital.
As capital per worker increases in a firm or an economy, the initial boosts to output are quite significant. However, due to a fixed amount of other resources such as technology or plant size, the effect of each additional unit of capital diminishes. For instance, increasing capital from 1 to 2 units may lead to a significant rise in output, but further increases lead to progressively smaller rises in output. This reflects a common real-world limitation where, eventually, additional capital contributes less and less to overall productivity.
