Does this production function, q = 10L 0.5K 0.3, experience increasing, decreasing or constant returns to...

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Does this production function, q = 10L 0.5K 0.3, experience increasing, decreasing or constant returns to...

Does this production function, q = 10L 0.5K 0.3, experience increasing, decreasing or constant returns to scale? Decreasing because 0.5 + 0.3 < 1. Increasing because an 80% increase in inputs increases outputs by 100%. Decreasing because a 100% increase in inputs increases outputs by 80%. A and C.

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Answer 1

Answer #1

Ans -A and C

- Decreasing because 0.5 + 0.3 < 1.

- Decreasing because a 100% increase in inputs increases outputs by 80%

Explanation:

-For constant the returns to scale, the sum of power of input i.e, K and L must be equal 1. It means that a 100% increase in inputs increases outputs by 100%

- For increasing return to scale, the sum of power of input i.e, K and L must be greater than 1. It means that a 100% increase in inputs increases outputs by more than 100%

- For decreasing returns to scale, the sum of power of input i.e, K and L must be less than 1. It means that a 100% increase in inputs increases outputs by less than 100%

Here it is the case of decreasing return to scale.

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Answer 2

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