All else equal, if there are diminishing returns, then a) capital produces fewer goods as it ages. increases in the capital stock eventually decrease output. The Law in Intensive and Extensive Forms: We have already seen what intensive cultivation and extensive cultivation mean. BusinessZeal, here, explores 5 examples of the law of diminishing returns. Diminishing returns occur in the short run when one factor is fixed (e.g. labour), there comes a point where it will become less productive and therefore there will eventually be a decreasing marginal and then average product. d) old ideas are not as useful as new ones. b. old ideas are not as useful as new ones. Diminishing return does not talk about good getting old. Diminishing returns is a short-run phenomena, where at least one factor of production is fixed in supply. Try a smart search to find answers to similar questions. b) increases in the capital stock increase output by ever smaller amounts. If there are diminishing returns to capital, then a. capital produces fewer goods as it ages. Since, capital is subjected to diminishing returns, the more capital an economy has, the less additional output the economy gets from an extra unit of capital.As a result, the growth eventually slows down in the long run, despite higher saving and investment. Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output. It talks about the more machines we add to the company, although our production increases, but it increases by a slower rate. Find an answer to your question “Due to the presence of diminishing returns to capital, doubling the amount of physical capital available for one worker to use will: ...” in Business if the answers seem to be not correct or there’s no answer. Question: According To The Solow Model, If There Are Diminishing Returns To Capital In The Economy's Long-run Production Function Equation, Then Which Of The Following Will Be Happening When The Capital Stock Is Growing, Other Things Equal? Depreciation Will Be Growing Faster Than Potential GDP. capital) If the variable factor of production is increased (e.g. Having 1 machine, we can produce 50 pizzas. All else equal, if there are diminishing returns, then what happens to productivity if both capital and labor increase? d. increases in the capital stock increase output by ever smaller amounts. c. increases in the capital stock eventually decrease output. Diminishing Returns: Diminishing return is an economic concept that manifests itself when the marginal output of a production process falls, despite an incremental increase in a factor of production. Explanation of Solution. For instance, lets say we have a pizza store. In this figure 22.2, we see that at first there is increasing return (i.e., O to A), then there is constant return (i.e., from A to B), and finally comes the diminishing return (i.e., from B to C). The law of diminishing returns applies to capital and labor as well as to land.To illustrate its application to capital, a fixed quantity of capital invested in a manufacturing plant may be considered. The law of diminishing returns states that a production output has a diminishing increase due to the increase in one input while the other inputs remain fixed. However, the question states that both capital and labour increases, so this must refer to the long run (and that depends on returns to scale) d.) none of the above are necessarily correct Click to see full answer. If when the plant is undermanned the amount of labor is gradually increased, for a time the product will be increased per unit of labor applied to the capital. The Capital Stock Will Be Growing Faster Than Depreciation. Furthermore, why is capital subject to diminishing returns? By adding the 2nd machine, pizza numbers increase to, lets say, 90.