(1) the rate of depreciation is 10% per year, (2) the population growth rate is 2%...
(1) the rate of depreciation is 10% per year,
(2) the population growth rate is 2% per year, and
(3) the growth rate of technology is 3% per year.
In the case of constant returns to scale but assuming decreasing returns to capital and decreasing returns to labor. If capital decreases by 3% and labor decreases by 3%, then we know that output will
remain the same
decrease by more than 6%
decrease by 6%
decrease between 3% and 6%
decrease by 3%
Homework Answers
Ans is E
when production function exhibits constant return to scale then it means equal proportionate change in all inputs will lead to equal change in output.
Thus when both labor and capital decreases by 3% then output also decreases by 3%
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