Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Higher marginal productivity leads to decreasing returns and reduced economies of scale
B
Lower marginal productivity increases fixed costs and enhances economies of scale
C
Higher marginal productivity encourages increased production, resulting in greater economies of scale
D
Marginal productivity does not affect economies of scale
Understanding the Answer
Let's break down why this is correct
Answer
The marginal productivity of capital refers to the additional output generated when one more unit of capital, like machinery or equipment, is added to production. In a long-run supply scenario, as firms invest more in capital, they can produce goods more efficiently and at a lower average cost. This is because the initial investments often lead to increased specialization and better technology, which enhances productivity. For example, a factory that buys new machines can produce more cars in the same amount of time, allowing the firm to lower prices and attract more customers. Therefore, a higher marginal productivity of capital can lead to economies of scale, where the cost per unit decreases as production increases, ultimately benefiting both the firm and consumers.
Detailed Explanation
When capital is more productive, it means that each dollar spent helps produce more goods. Other options are incorrect because Some might think that higher productivity means less efficiency; It's a common mistake to think lower productivity helps reduce costs.
Key Concepts
marginal productivity
economies of scale
Topic
Investment and Long-Run Supply
Difficulty
medium level question
Cognitive Level
understand
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