If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, and E is the stock of knowledge, and the production Y = F(K,(1 - u) EL) exhibits constant returns to scale, then output (Y) will double if:
A) K is doubled.
B) K and u are doubled.
C) K and E are doubled.
D) L is doubled.

Question

Quizplus · Accepted Answer

Doubling both capital (K) and the stock of knowledge (E) while keeping the fraction of the labor force in universities (u) and labor (L) constant will double the output (Y) due to the constant returns to scale property of the production function. This means that increasing all inputs by the same proportion results in an increase in output by that proportion.

If Y Is Output, K Is Capital, U Is the Fraction