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 for all inputs is less than 1, i.e. (a+b+s1+u1+p1+1+k) < 1. Simplifying this expression using the given production function, we get (a+b) < 0, which means a + b < 1, as the exponents cannot be negative. Therefore, option C is the correct answer.

Let the Production Function Be Q = ALaKb

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