Under what conditions do the following production functions exhibit decreasing, constant, or...
Question:
Under what conditions do the following production functions exhibit decreasing, constant, or increasing returns to scale?
a. {eq}q = L + K {/eq}, a linear production function,
b. {eq}q = L^{\alpha}K^{\beta} {/eq}, a general Cobb-Douglas production function.
Returns to scale
Production function provides a frontier with inputs limits to be employed to reach the production combinations. Such production is maximized provided with certain input productivities. With changing productivities, production returns change, they may constantly rise, stay the same or fall. These are returns to scale.
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a.
Linear production function:
If the linear production function is multiplied by a constant, say t, the output should also be multiplied by t.
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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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