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3.3 Consider the following production function: F(K,L) = K L Find out what relation should exist between a and b in order for this function to exhibit constant returns to scale.

3.3 Consider the following production function: F(K,L) = K L Find out what relation should exist between a and b in order for this function to exhibit constant returns to scale.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter7: Production Economics
Section: Chapter Questions
Problem 7E
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3.3

Exercise 3 3.1 Consider the following production function: F(K,L) = K0.3L0.7 State if this function exhibits constant, increasing or decreasing returns to scale. 3.2 Consider the following production funetion: F(K,L) = K0.5L0.8 State if this function exhibits constant, increasing or decreasing returns to scale. 3.3 Consider the following production function: F(K, L) = K°L Find out what relation should exist between a and b in order for this function to exhibit constant returns to scale. 3.4 Constant returns to scale is an assumption that fits the reality most of the times. But it does not always hold. Make an example of a firm or a type of business in the real world that exhibits increasing or decreasing returns to scale
Transcribed Image Text:Exercise 3 3.1 Consider the following production function: F(K,L) = K0.3L0.7 State if this function exhibits constant, increasing or decreasing returns to scale. 3.2 Consider the following production funetion: F(K,L) = K0.5L0.8 State if this function exhibits constant, increasing or decreasing returns to scale. 3.3 Consider the following production function: F(K, L) = K°L Find out what relation should exist between a and b in order for this function to exhibit constant returns to scale. 3.4 Constant returns to scale is an assumption that fits the reality most of the times. But it does not always hold. Make an example of a firm or a type of business in the real world that exhibits increasing or decreasing returns to scale
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