Q5. Find if each Cobb-Douglas production functions below is constant return to scale, increasing return to...

Q5. Find if each Cobb-Douglas production functions below is constant return to scale, increasing return to scale, or decreasing return to scale?

Q=20K^0.8 L^0.5

Q=35K^0.8 L^0.8

Q=40K^0.3 L^0.5

Expert Solution

Solution:

We can figure out wether the production function is constant, increasing or decreasing by adding the value of parameters that is and . Please see the detail solution in the image given below.

So both first and second function are increasing return to scale because value addition of alpha and beta is greater than 1.

The third function is dereasing return to scale ,as the value of addition of alpha and beta is less than 1.

Rahul Sunny answered 1 year ago

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