Consider the aggregate production function Y = F(K, L). If the inputs K and L are increased by 5 percent each and total output (Y)increases by 5 percent as a result, then this production function is displaying

Question

Quizplus · Accepted Answer

The fact that increasing both inputs by 5 percent leads to a 5 percent increase in output indicates constant returns to scale. This means that doubling the inputs would double the output, and tripling the inputs would triple the output, etc. In other words, the production function exhibits constant productivity regardless of the scale of inputs used.

Consider the Aggregate Production Function Y = F(K, L)