The production function of an economy is F(K,L) = 20(K0.5L0.5), where L is labour and K...

The production function of an economy is F(K,L) = 20(K^0.5L^0.5), where L is labour and K is capital with L = 400 and K = 400.

What type of returns to scale does this production function exhibit?

Expert Solution

Here,

Now to check what type of returns of scale this production function exhibit:

We need to check effect of z i.e. production change factor on given production function,

This Y1 = z * Y0 shows that given production function exhibits Constant Returns to Scale.

Now put given value of K = 400 & L = 400 into Y0:

Rahul Sunny answered 2 years ago

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