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In: Economics

Do each of the following production functions exhibit decreasing, constant or increasing returns to scale? Prove...

Do each of the following production functions exhibit decreasing, constant or increasing returns to scale? Prove your answers.

• Q = .5L.34 + K.34
• Q = [min (K, 2L)]2
• Q = (0.3L.5 + 0.7K.5)2
• Q = 4KLM where K, L, M are inputs

Expert Solution

1. The production function exhibits decreasing returns to scale.

The reason being that increasing the inputs by a>1 times, we have or or or , ie the output increases less than a times.

2. The production function exhibits increasing returns to scale.

The reason being that increasing the inputs by a>1 times, we have or or or , ie the output increases more than a times.

3. The production function exhibits constant returns to scale.

The reason being that increasing the inputs by a>1 times, we have or or or or or , ie the output increases by the same factor (a times).

4. The production function exhibits increasing returns to scale.

The reason being that increasing the inputs by a>1 times, we have or or , ie the output increases more than a times.

Rahul Sunny answered 2 years ago

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