With the Cobb-Douglas production function Y=zK1/4nd3/4, if both capital andlabour increase by 20%, what will happen to output?O Output will increase by exactly 20%O Since the average value of the exponents in the production function is 1/2,output will only increase by 10%.Because the production function exhibits diminishing returns, output willincrease by less than 20%.

Answer: Given, Production function: Y=zK14Nd34 Increase in both capital and labor = 20% Value of K…

With the Cobb-Douglas production function Y=zK1/4nd374, if both capital and labour increase by 20%, what will happen to output? Output will increase by exactly 20% Since the average value of the exponents in the production function is 1/2, output will only increase by 10%. O Because the production function exhibits diminishing returns, output will increase by less than 20%.

With the Cobb-Douglas production function Y=zK1/4nd374, if both capital and labour increase by 20%, what will happen to output? Output will increase by exactly 20% Since the average value of the exponents in the production function is 1/2, output will only increase by 10%. O Because the production function exhibits diminishing returns, output will increase by less than 20%.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter9: Production Functions

Section: Chapter Questions

Problem 9.8P

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