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Which of the following is not a core assumption (is a simplifying assumption) employed in development...

Which of the following is not a core assumption (is a simplifying assumption) employed in development of the production model? a. the capital stock varies with respect to changes in the level of production b. the capital stock is employed until the real rental of capital equals the marginal product of capital c. decreasing marginal returns to capital and labor d. labor is employed to maximize profits

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Answer #1

In the production model, the core assumptions involve two resources capital and land which exhibit diminishing marginal returns to capital and labor, The capital stock varies with respect to changes in the level of production, decreasing marginal returns to capital and labor and labor is employed to maximize profits. However, the efficiency is not assured by the assumption which is that capital stock is employed until the real rental price of capital equals the marginal product of capital.

the correct option is (b)

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