Economic Growth and Productivity Explained

What is the relationship between economic inputs and output in the aggregate production function?

Choose the correct answer:
a. Positive linear relationship
b. Negative linear relationship
c. Diminishing returns relationship
d. Constant returns relationship

Answer:

The relationship between economic inputs and output in the aggregate production function is a diminishing returns relationship.

The aggregate production function represents the relationship between economic inputs (such as labor, machinery, and raw materials) and the output of goods and services. In this relationship, as more inputs are utilized in the production process, the total output increases. However, this increase occurs at a diminishing rate due to the law of diminishing returns.

As more and more input is added, the marginal product of each additional unit of input decreases, leading to a situation where the increase in output becomes smaller relative to the increase in input. This is why the aggregate production function is shaped as a curve that starts steep and eventually flattens out.