Capital formation and output relationship

The capital-output ratio (also called incremental capital-output ratio or ICOR) measures the amount of capital required to produce one unit of output. A high capital-output ratio means that despite significant capital formation/investment, only a small increase in output is generated. This reflects inefficiency in capital utilization. For example, if ICOR is 4, then 4 units of capital investment are needed to generate 1 unit of output. Options (a) weak administration and (b) illiteracy could affect efficiency, but they don't directly explain why capital formation doesn't increase output - they explain why capital is underutilized. Option (c) high population density doesn't directly prevent output increase from capital formation. Option (d) directly explains the inverse relationship - a high capital-output ratio mathematically means less output per unit of capital invested. This is the most technically precise answer in economic terms. > ICOR concept: High capital-output ratio = Low efficiency of capital = Less output from same capital. Answer: (d).