Suppose the production of VCRs can be represented by the following production function:
Q = L^0.4 K^0.4.Which of the following statements is (are) TRUE?

Question

Suppose the production of VCRs can be represented by the following production function: Q = L^0.4 K^0.4.Which of the following statements is (are)TRUE?

Quizplus · Accepted Answer

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.

B) The marginal productivity of labor falls as labor increases in the short run because the exponent of labor in the production function is less than 1, which means that as labor increases, the marginal product of labor will eventually decrease.

C) Capital and labor can be substituted for one another because the exponents of capital and labor are the same and less than 1, which means that an increase in one input can be partially offset by a decrease in the other input.

Therefore, all of the statements are true.

Suppose the Production of VCRs Can Be Represented by the Following