Suppose a country's labor supply increases in a year while its physical capital stock remains constant. Which of the following is likely to happen in this case if output is a function of capital and the total efficiency units of labor? A. Its total output will remain constant. B. Its total output will decrease. C. Its total output will increase. D. Its output per capita will decrease.

If the labor supply of any country increases and its capital stock of physical factors/inputs of production remain constant, then the per capita output will decrease. Hence, option D. is the answer here or Its output per capita will decrease.

Explanation:

In this case, the output is a function of both labor and capital or physical factors or inputs of production. If only labor increases in the production process keeping the capital or physical factors/inputs of production fixed, the marginal product of labor will increasingly decline or in other words, the additional output generated by per labor input used in the production will gradually fall or decrease. This is also known as per capita output, holding the level of capital fixed. As more and more labor is employed in production keeping the capital or physical factors/inputs of production fixed, then the labor productivity will be hampered as the laborers or workers do not have enough capital or physical resources to work with and the per capital output or the marginal product of labor will decrease progressively.