In: Economics
In the equation for the production function K/L represents
A. | natural resources per worker. | ||
B. | human capital per worker. | ||
C. | output per worker. | ||
D. | physical capital per worker. |
Answer. (D) physical capital per worker
Explanation. First of all, in economics, K and L are agreed widely to be used for physical capital and labour respectively. So naturally anywhere K/L makes sense of physical capital per worker. Now with respect to a production function's equation also, like in cobb-douglas production function or any other, K/L again represents physical capital per worker. This ratio is useful for efficiency purposes as it can tell whether sufficient amount of capital is available for every worker so that maximum output can be produced. It will also tell if more than necessary capital is being employed per worker, where the solution would be to either increase workers or decrease capital.