A Key Characteristic of the Production Function in the Endogenous

question 23

Multiple Choice

A key characteristic of the production function in the endogenous growth model presented in the text is that

• A)there are constant returns to scale in human capital.
• B)there are decreasing returns to scale in human capital.
• C)at low levels of human capital, there are increasing returns to scale in human capital, while at high levels of human capital, there are decreasing returns to scale in human capital.
• D)there are increasing returns to scale in human capital.
• E)there are substantial diminishing marginal returns to human capital.

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Definitions:

Profitability Index

A calculation that determines the relationship between the costs and benefits of a proposed project through a ratio derived from present value of future cash flows divided by initial investment.

Net Present Value

An analysis that assesses the worth of a project or investment by comparing all incoming and outgoing cash flows against a discount rate.

Internal Rate Of Return

A metric used in capital budgeting to estimate the profitability of potential investments.

Payback Method

A capital budgeting method that calculates the time needed to recoup the initial investment from the cash inflows.