1. Consider the production function ?(?, ?) = (?1/2 + ?1/2)2/3 , where L denotes labor...
1. Consider the production function ?(?, ?) = (?1/2 +
?1/2)2/3 , where L denotes labor and K
capital. This production function exhibits
A. constant returns to scale.
C. decreasing returns to scale.
D. increasing returns to scale.
Homework Answers
Answer
C. decreasing returns to scale.
To find it we need to increase the input by n time sna check the output increases by how much time
It means the input increases by n times then the output increases by n^(1/3) times means the output increases less than an input so it is decreasing return to scale.
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