If the sum of the powers associated with the inputs in a Cobb-Douglas production function
Exceeds 1,the production function is characterized by:
A)constant returns to scale.
B)decreasing returns to scale.
C)increasing returns to scale.
D)diminishing returns to all inputs.

Question

Quizplus · Accepted Answer

When the sum of the powers associated with the inputs in a Cobb-Douglas production function exceeds 1, it implies that the returns to scale are increasing. This means that if all inputs are increased proportionally, the output will increase at a greater rate. Thus, the firm can enjoy economies of scale and experience lower average costs as it expands its level of production.

If the Sum of the Powers Associated with the Inputs