Under what conditions do the following production functions exhibit decreasing, constant, or increasing returns to scale? a. q = L + K b. q = L + LaKb + K
Under what conditions do the following production functions exhibit decreasing, constant, or increasing returns to scale? a. q = L + K b. q = L + LaKb + K
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter7: Production Economics
Section: Chapter Questions
Problem 1.5CE
Related questions
Question
100%
4.3
Under what conditions do the following production functions exhibit decreasing, constant, or increasing returns to scale?
a. q = L + K
b. q = L + LaKb + K
Expert Solution
Step 1
When an increase in inputs results in a proportional increase in output, there occurs constant returns to scale. When an increase in inputs results in a more than proportionate increase in output, there occurs increasing returns to scale. When an increase in inputs results in a less than proportionate increase in output, there occurs decreasing returns to scale.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax