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keagamfish keagamfish
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Define the aggregate production function. Discuss why the aggregate production function exhibits diminishing returns.
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Macroeconomics

Macroeconomics


Edition: 12th
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Betty D.Betty Davis
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 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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