Question

1. Given the following production functions determine whether the production functions exhibit increasing, decreasing, or constant...

1. Given the following production functions determine whether the production functions exhibit increasing, decreasing, or constant returns to scale for all levels of output.

a) Q = L0.3K0.2

b) Q = (L+0.01K)0.8

c) Q = min[2L,K]

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Homework Answers

Answer #1

Let production function Q = F(K,L);

Now lets define the returns to sacle:

if F(mK, mL) = mF(K, L) means constant returns to scale

if F(mK, mL) > mF(K, L) means increasing returns to scale

if F(mK, mL) < mF(K, L) means decreasing returns to scale

Que1:

(a)

So, Decreasing Returns to Scale

(b)

So, Decreasing Returns to Scale

(c)

So, constant returns to scale

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