Scenario: Two Economies, a and B, Have Identical Aggregate Production

question 180

Multiple Choice

Scenario: Two economies, A and B, have identical aggregate production functions with diminishing returns. In both economies, capital and labor are equally important for production. Economy A has twice as many efficiency units of labor as economy B. Economy B has twice as much physical capital stock as economy A.
-Refer to the scenario above.Which of the following statements is true?

• A) Productivity must be greater in economy A.
• B) The relationship between GDP and total efficiency units of labor must be the same in economies A and B.
• C) The relationship between GDP and physical capital stock cannot be the same in economies A and B.
• D) All of the above.

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Definitions:

Unit Variable Cost

The cost associated with producing one additional unit of a product, which includes materials, labor, and other variable costs.

Break-even Chart

A graphical representation showing the point at which total costs and total revenue are equal, thus indicating no profit or loss.

Fixed Costs

Business expenses that remain constant regardless of the level of production or sales, such as rent, salaries, and insurance premiums.

Variable Costs

Expenses that change in proportion to the level of production or sales volume, such as raw materials or direct labor costs.