Question

Will a firm experience diminishing marginal returns in the short run if its production function is:

a. q = K+L?

b. q = KL?

C. q = KL^0· 5?

Answer 1

(a) q= K+L

MPL = 1

MPK= 1

The given production function exhibits constant marginal returns to both factors. So, No the firm will not experience diminishing marginal return in the short run .

(b) q= KL

MPL = K

MPK = L

This given production function does not exhibit diminishing marginal returns to both factors.

(c) q= (KL)^0.5

MPL = 0.5K^0.5L^-0.5

MPK=0.5K^-0.5 L^0.5

The given production function exhibits diminishing marginal returns for both factors because MPL decrease as L increases and MPK decreases as K increases.