The Cobb-Douglas production function F(L,K)= AL^αK^β will exhibit decreasing returns to scale when: A) α + β = 1. B) α + β 1. D) α + β = 0.

Question

The Cobb-Douglas production function F(L,K)= AL^αK^β will exhibit decreasing returns to scale when: A) α + β = 1. B) α + β < 1. C) α + β > 1. D) α + β = 0.

Quizplus · Accepted Answer

The Cobb-Douglas production function exhibits decreasing returns to scale when the sum of the exponents of labor and capital (α and β) is less than 1. This means that if inputs are increased by a certain percentage, output will increase by a smaller percentage. Therefore, option B is correct. Options A, C, and D are incorrect because they represent scenarios where the function exhibits constant, increasing, or zero returns to scale, respectively.

The Cobb-Douglas Production Function F(L,K)= ALαKβ Will Exhibit Decreasing Returns

The Cobb-Douglas Production Function F(L,K)= AL^αK^β Will Exhibit Decreasing Returns