The curve below shows the relationship between real GDP per worker and physical

Question

The curve below shows the relationship between real GDP per worker and physical capital per worker in a given economy. Use the graph to answer the questions that follovw 60000 55000 50000 45000 40000 How much will real GDP per worker increase if physical capital per worker increases from $20,000 to $40,000? Real GDP Per Worker (S) 35000 30000 25000 20000 15000 10000 5000 0 Number How much will real GDP per worker increase if physical capital per worker 010000 200003000040000 50000 60000 70000 80000 increases from $40,000 to $60,000? Physical Capital Per Worker (S) Number What does this graph demonstrate about the relationship between real GDP per worker and physical capital per worker? There are diminishing returns to investment in physical capital The optimal level of capital per capita is $60,000 Increasing capital leads to a constant increase in real O GDP

Explanation / Answer

When physical capital per worker increases from $20000 to $40000, real GDP per worker increases from $25000 to $40000 I.e. By 40000-25000 = $15000

If physical capital per worker increases from $40000 to $60000, real GDP per worker increases from $40000 to $45000.

there are diminishing returns to investment in physical capital changes.

Because initially when physical capital increased by $20000, real GDP increased by $15000 but when physical capital further increased by $20000, real GDP increased just by $5000.

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