Assignment - Week 4 (continued) 3. We continue with the 2-input version Y = AL KB. a) The degree of returns to scale for the Cobb-Douglas production function is given by (a+b). Relate this expression to your answer to Question 1b. b) Does the degree of returns to scale for a firm with a Cobb-Douglas production function depend on how big the firm is? Explain. (You can interpret "big" to mean either the inputs L or K are big, or the output Y is big it doesn't matter.) c) Say we are investigating an industry where we think small firms have increasing returns to scale, but large firms have constant returns to scale. Should we use a Cobb-Douglas production function to model firms in this industry? Why or why not? VERTE
Assignment - Week 4 (continued) 3. We continue with the 2-input version Y = AL KB. a) The degree of returns to scale for the Cobb-Douglas production function is given by (a+b). Relate this expression to your answer to Question 1b. b) Does the degree of returns to scale for a firm with a Cobb-Douglas production function depend on how big the firm is? Explain. (You can interpret "big" to mean either the inputs L or K are big, or the output Y is big it doesn't matter.) c) Say we are investigating an industry where we think small firms have increasing returns to scale, but large firms have constant returns to scale. Should we use a Cobb-Douglas production function to model firms in this industry? Why or why not? VERTE
Chapter1: Making Economics Decisions
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Transcribed Image Text:Assignment - Week 4 (continued)
3. We continue with the 2-input version Y = AL KB.
a) The degree of returns to scale for the Cobb-Douglas
production function is given by (a+b). Relate this
expression to your answer to Question 1b.
b) Does the degree of returns to scale for a firm with
a Cobb-Douglas production function depend on how big
the firm is? Explain. (You can interpret "big" to
mean either the inputs L or K are big, or the output
Y is big it doesn't matter.)
c) Say we are investigating an industry where we think
small firms have increasing returns to scale, but
large firms have constant returns to scale. Should
we use a Cobb-Douglas production function to model
firms in this industry? Why or why not?
VERTE
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