Estimation of a production function from the linear equation Q = a + bL + cK,assumes that the law of diminishing returns _____.
A)applies to labor only
B)applies to capital only
C)applies to both capital and labor
D)does not apply to either input

Question

Quizplus · Accepted Answer

The linear production function Q = a + bL + cK assumes constant returns to each input (labor, L, and capital, K), meaning that the output increases by a constant amount for each additional unit of input. This implies that the law of diminishing returns, which states that adding more of one input while holding others constant will eventually yield lower increments of output, does not apply to either input in this linear model.

Estimation of a Production Function from the Linear Equation Q