b) Suppose a business faces a production function which is of the Cobb-Douglas form: Q(L, K) = ALªKB where Q represents total product, L represents labour units, K represents capital units, A is some fixed constant representing technology and a and B are fixed parameters. Show that if a + B> 1 there is increasing returns to scale. Also show that the output elasticities with respect to labour and capital are constants and equal to a and B, respectively.

b) Suppose a business faces a production function which is of the Cobb-Douglas form: Q(L, K) = ALªKB where Q represents total product, L represents labour units, K represents capital units, A is some fixed constant representing technology and a and B are fixed parameters. Show that if a + B> 1 there is increasing returns to scale. Also show that the output elasticities with respect to labour and capital are constants and equal to a and B, respectively.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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