Capital Investment Enhances Worker Efficiency

Steps:

• Define labour productivity as output per worker hour.
• Identify factors that increase output without proportionally increasing labour.
• Evaluate each option's impact on output per worker.
• Select the option that directly boosts efficiency through better tools.

Why A is correct:

• Labour productivity rises with more capital (e.g., machinery), as it amplifies worker output per the production function Y = f(K, L), where K is capital and L is labour.

Why the others are wrong:

• B: Higher income taxes reduce worker incentives, potentially lowering effort and productivity.
• C: Increased demand may expand output but often requires more workers, diluting productivity per worker.
• D: More firms heighten competition but do not inherently improve efficiency in existing operations.

Final answer: A