Constant returns to scale in the matching function means that, given any constant $x 0$ A) $m ( x Q , x A ) x m ( Q , A )$. B) $m ( x Q , x A )

Question

Constant returns to scale in the matching function means that, given any constant $x > 0$
A) $m ( x Q , x A ) > x m ( Q , A )$.
B) $m ( x Q , x A ) < x m ( Q , A )$.
C) $m ( x Q , x A ) = \mathrm { e } ^ { \mathrm { x } m } ( Q , A )$.
D) $m ( x Q , x A ) = \frac { 1 } { x } m ( Q , A )$.
E) $m ( x Q , x A ) = x m ( Q , A )$.

Quizplus · Accepted Answer

Constant returns to scale in the matching function means that doubling both the number of vacancies and the number of unemployed should double the number of matches. Therefore, the matching function should satisfy the property of homogeneity of degree 1. This means that for any constant $x > 0$, we should have $m ( x Q , x A ) = x m ( Q , A )$. Therefore, the correct choice is E.

Constant Returns to Scale in the Matching Function Means That x>0x > 0x>0

Constant Returns to Scale in the Matching Function Means That $x > 0$