- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 9. Economic Growth
- Subject 3. Production Function and Growth Accounting
CFA Practice Question
The law of diminishing returns states that if a given number of hours of labor use more capital (with the same technology), then the ______ as the amount of capital increases.
II. additional output that results from the additional capital gets smaller
III. additional output that results from the additional capital gets larger
I. total output that results from the additional capital gets larger
II. additional output that results from the additional capital gets smaller
III. additional output that results from the additional capital gets larger
Correct Answer: I and II
User Contributed Comments 5
| User | Comment |
|---|---|
| ericczhang | Answer I isn't always true. It's possible for capital to have negative marginal contribution to production. |
| cfaajay | Answer 1 is always true..read the question carefully..:-) |
| ascruggs92 | You're thinking of efficiency, not output ericczhang. Negative units of production are never a possible result from increased input. At worst they can produce zero more units with the additional input (say every additional product came out bad and had to be thrown away) but never will additional input lead to a reduction in units produced. |
| thebkr777 | This is some fun wording. |
| jmliguori | "total" vs "additional" |