With a Cobb-Douglas technology, when α+ β= 1, we have
A) constant returns to scale
B) increasing returns to scale
C) decreasing returns to scale

Question

Quizplus · Accepted Answer

When α + β = 1, this means that the two inputs (capital and labor) are perfect substitutes. This results in a constant returns to scale, meaning that doubling both inputs will lead to a doubling of output.

With a Cobb-Douglas Technology, When α+ β= 1, We Have