Question

Please help with Part A!

1. Fill in the following table, using the production function (keep two decimal points) Q = 100 K03L .8 LABOR CAPITAL 100 100 15848.93 27594.59 38167.79 48044.98 57434.92 200 19512.32 33972.93 46990.06 59150.31 70710.69 300 22036.18 38367.22 66801.22 72822.57 79856.89 187055.06 400 53068.08 57851.55 61856.88 24022.49 41825.58 500 25685.68 44721.36 77864.41 93082.28 a) What happens along the diagonal as you double both inputs from 100 to 200 and 200 to 4002

Answer 1

(a)

When both inputs are doubled from 100 to 200 then output increases from 15848.93 units to 33972.93 units.

The output increases by 18,124 units. This means output got more than doubled.

So, when inputs are increased by 100 percent, output increases by more than 100 percent.

When both inputs are doubled from 200 to 400 then output increases from 33972.93 units to 72822.57 units.

The output increases by 38849.64 units. This means output got more than doubled.

So, again, when inputs are increased by 100 percent, output increases by more than 100 percent.

When output increases by a greater percentage than the percentage increase in inputs then, in that case, firm is experiencing increasing returns to scale or economies of scale.

So,

Firm is experiencing increasing returns to scale or economies of scale along the diagonal as you double both inputs from 100 to 200 and 200 to 400.