Which statement best explains why growth in China has been so rapid recently? China began with very little capital, so its marginal product of capital was very low. China began with very high capital, so its marginal product of capital was very high. China began with very little capital, so its marginal product of capital was very high. China began with very high capital, so its marginal product of capital was very low.

Question

Business

Hezekiah Arnold

21 November, 18:27

Which statement best explains why growth in China has been so rapid recently? China began with very little capital, so its marginal product of capital was very low. China began with very high capital, so its marginal product of capital was very high. China began with very little capital, so its marginal product of capital was very high. China began with very high capital, so its marginal product of capital was very low.

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Answers (1)

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Dean Bauer · Answer 1

Third statement "China began with very little capital, so its marginal product of capital was very high"

Explanation:

Marginal product of capital is the is the additional output that results from one additional unit of capital (machinery and equipment). It is a ratio, where the output is in the numerator and the capital is in the denominator.

Then, when the capital is low, an increase in the output will result in a high increase of the marginal product, eventhough the output is not so big.

As the capital increases, the marginal product of capital will decrease, except that an extraordinary output occurs.

China showed a rapid growth (increase in output) and a low capital (denominator of our ratio) which explains a high marginal product of capital; as the capital increased, the ratio (the marginal cost) decreased. This is consistent with the third choice "China began with very little capital, so its marginal product of capital was very high".