Suppose the production of mp3 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 = L^0.4K^0.4 suggests a complex interaction between labor (L) and capital (K), with exponents indicating the rate at which output changes in response to changes in inputs. The presence of diminishing returns (implied by the nature of the function and the exponents less than 1) supports all the given statements: A) Decreasing returns to scale occur when increasing the inputs leads to a less than proportional increase in output. B) The marginal productivity of labor decreases as more labor is added, which is typical in production functions where inputs have diminishing marginal returns. C) The function's structure, with both labor and capital as inputs, implies that they can be substituted for one another to some extent, adjusting the production process based on the availability and cost of these inputs.

Suppose the Production of Mp3 Players Can Be Represented by the Following