Let the production function be q = AL^aK^b. The function exhibits decreasing returns to scale if A)a + b = 1. B)a + b 1. C)a + b

Question

Let the production function be q = AL^aK^b. The function exhibits decreasing returns to scale if A)a + b = 1. B)a + b > 1. C)a + b < 1. D)Cannot be determined with the information given.

Quizplus · Accepted Answer

The production function exhibits decreasing returns to scale if the sum of the exponents of all inputs is less than 1. In this case, the sum of the exponents of labor, capital, and materials is a+b+^aK^b+S1P0 which can be simplified to a+b+1 < 2. Therefore, a+b < 1 and the answer is C.

Let the Production Function Be Q = ALaKb

Let the Production Function Be Q = AL^aK^b