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Suppose the production function for a country is given by Y = F(K, L) = K0.4L0.4. Does this...

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Suppose the production function for a country is given by {eq}Y = F(K, L) = K^{0.4} \cdot L^{0.4} {/eq}. Does this production function have constant returns to scale? Explain.

Constant returns to scale:

The inputs are employed in order to produce an output. When the inputs increase, it increases the output as well which we call as the returns to scale. When the increase in input result the same increase in the output, we call it constant returns to scale.

Answer and Explanation: 1

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No, this production function does have constant returns to scale.

Let us see why:

Multiply the production with the constant number 'z'.

{eq}\begin{...

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Constant Returns to Scale: Definition & Example

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Chapter 16 / Lesson 17
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