Suppose the production of DVD players can be represented by the following production function: q = L^0.4K^0.4. Which of the following statements is (are)TRUE? A)The production function has decreasing returns to scale. B)The marginal productivity of labor falls as labor increases in the short run. C)Capital and labor can be substituted for one another. D)All of the above.

Question

Quizplus · Accepted Answer

The production function q = LS^1U^1P^10.4S^1S^1P^0.4 exhibits characteristics of decreasing returns to scale due to the sum of the exponents on labor and capital being less than 1 (0.4 + 0.4 < 1), indicating that doubling all inputs will result in less than double the output. The marginal productivity of labor decreases as labor increases because the exponent on labor is less than 1, indicating diminishing marginal returns. The presence of both labor (L) and capital (K) in the production function with positive exponents suggests that they can be substituted for one another to some extent, as varying the proportions of labor and capital can still produce output.

Suppose the Production of DVD Players Can Be Represented by the Following