Question

1. Show whether the following production functions exhibit decreasing returns to scale (DRS), constant returns to scale (CRS), or increasing returns to scale (IRS)?

a. q = 10L^0.6 K^0.5

b. q = L + K

c. q = L^0.6 + K^0.5

Answer 1

1- so basically as we can see here that all these functions are homogeneous except for C

a function is irs if we increase both the inputs simultaneously and the output is increased by more than the increase in inputs,

a function is drs if we increase both the inputs simultaneously and the output is increased by less than the increase in inputs,

a function is crs if we increase both the inputs simultaneously and the output is increased by equal the increase in inputs,

here we can see that A is a homogeneous function of degree greater than 1 thus it is IRS, B is homogeneous of degree 1 so it is crs, C is not homogeneous, so we cant say weather its irs drs or crs