Define the aggregate production function. Discuss why the aggregate production function exhibits diminishing returns
What will be an ideal response?
The aggregate production function is the relationship that shows the maximum quantity of real GDP that can be produced as the quantity of labor employed changes and all other influences on aggregate production remain the same. The aggregate production function exhibits diminishing returns because the quantity of capital (and other resources) is fixed. As more labor is hired, the extra output produced decreases because the extra workers have less capital with which to work. As a result, the additional workers cannot produce as much additional output as did the previously hired workers.
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Refer to Figure 11-17. Assume that production isoquants are convex. Total cost and output produced must increase for each of the following movements except one. Which movement is the exception?
A) point a to point b B) point b to point c C) point b to point d D) point a to point c
The Economic Freedom of the World index is a measure of the consistency of a nation's institutions and policies with
a. political democracy. b. economic freedom. c. an Egalitarian distribution of income. d. economic nationalism.