What can you say about the returns to scale of the linear production function Q = aK + bL, where a and b are positive constants?
Answer
constant return to scale
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if we increase the input n times
output =a(Kn)+b(Ln)
=anK+bnL
=n(aK+bL)
=n(Q)
the output increases by the same time as the input increases, the input increased by n time, and the output increased by n time.
What can you say about the returns to scale of the linear production function Q =...
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