1. Suppose firms use two inputs, capital, K, and labour L to produce output. Their productionfunctions are written as a function of K and L: F(K, L). For each of the following productionfunctions, determine i) whether the production function exhibits increasing, decreasing, or constantreturns to scale, and ii) if both inputs double, by what factor (how many times) output will increase.(a) F(K,L) = 5K² +3L²(b) F(K,L) = 8K0.4 0.3(c) F (K, L) = K² (2K³ – L³)

Answered: 1. Suppose firms use two inputs,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Suppose firms use two inputs, capital, K, and labour L to produce output. Their production
functions are written as a function of K and L: F(K, L). For each of the following production
functions, determine i) whether the production function exhibits increasing, decreasing, or constant
returns to scale, and ii) if both inputs double, by what factor (how many times) output will increase.
(a) F(K,L) = 5K² +3L²
(b) F(K,L) = 8K0.4 0.3
(c) F (K, L) = K² (2K³ – L³)

Expert Solution

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The production function shows the relationship between the output and inputs. The change in the inputs leads to change in output level. Degree of change in the output following change in inputs, is measured through the returns to scale. The returns to scale is dividing into three parts: Increasing returns to scale, decreasing returns to scale and constant returns to scale.

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