Determine whether the following production function exhibits increasing, constant or decreasing...

Question:

Determine whether the following production function exhibits increasing, constant or decreasing returns to scale.

{eq}Q = K + L {/eq}

Returns to Scale:

Returns to scale is a concept in economics that illustrates how output increases in proportion with the increase in inputs. When the same factor is added to all inputs, outputs will change accordingly. The quantitative change in outputs depends on if the production function was constant, decreasing, or increasing returns to scale.

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Given {eq}Q = K + L {/eq}

We increase inputs a proportional amount {eq}\lambda {/eq} for both {eq}K {/eq} and {eq}L {/eq} and compare with the...

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Returns to Scale in Economics: Definition & Examples

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Chapter 3 / Lesson 71
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Understand the meaning of returns to scale in economics. Learn about increasing returns to scale, constant returns to scale and decreasing returns to scale.


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