Question

Bridget's Brewery production function is given by y(K, L) = 2 root of KL, where K is the number of vats she uses and L is the number of labor hours. Does this production process exhibit increasing, constant or decreasing returns to scale?  

Answer 1

Bridget's Brewery production function is given by ;

y = 2

Returns to scale refers to the relationship between output and proportional increases in all inputs.

This concept can be represented as:

y(K, L) > y(K, L) implies increasing returns to scale

y(K, L) = y(K, L) implies constant returns to scale

y(K, L) < y(K, L) implies decreasing returns to scale

where represents a proportional increase in inputs

Therefore, we can substitute K for K and L for L, and check the result against an equal increase in y.

y = 2

y = 2 = y

This production function exhibits constant returns to scale.