Question

why the productivity of capital (Marginal product of Capital/ MPK) would differ across countries

explain and give readons

Answer 1

Marginal productivity or marginal product refers to the extra output, retun or profit yielded per unit by advantageous from production inputs.We have generally seen that productivity of capital is differeing across various countries depending on their availability of capital both physical and human , technological development , growth and output.It has been seen that the growth rate of the developing or under developed countries are more, compared to the developed countries in the world ,this is because of the Law of Diminishing marginal return or Law of diminishing marginal productivity. The law suggests that the managers of production will find a marginally diminishing rate of production return per unit produced after making advantageous adjustments to inputs driving production. Developed countries of the world will get lesser return on using an extra amount of capital compared to under-developed countries.

Suppose we have two countries , X and Y where X is a developing country while Y is a developed country. Say X is operating at point A in the production function shown below , a change in capital will lead to a significant change in output for country X as it move from point A to B. However Y being the developed country in operating at point C and any change in the capital input will result in minimal increase in output for the country as it moves from point C to D. This is also known as catch up effect as the underdeveloped countries goes on to compete with the developed countries of the world and also this is why we see a huge flow of capital going from the developed countries to other poor countries as the return is higher in those poor countries.