A firm is currently producing 100 widgets using 4 units of labor and 12 units of capital.The firm's production function exhibits constant returns to scale.How many units of labor and capital are needed to produce 350 widgets?
A) L = 14; K = 42
B) L = 15; K = 45
C) L = 14; K = 44
D) L = 15; K = 42

Question

Quizplus · Accepted Answer

Since the production function exhibits constant returns to scale, increasing the output by a factor requires increasing the inputs by the same factor. To increase production from 100 to 350 widgets (a factor of 3.5), both labor and capital must be increased by a factor of 3.5. Thus, labor (L) increases from 4 to 14 units (4 * 3.5 = 14) and capital (K) increases from 12 to 42 units (12 * 3.5 = 42).

A Firm Is Currently Producing 100 Widgets Using 4 Units