Scenario: Assume the following aggregate production functions for two countries, A and B, respectively.
YA=A KA¹/² ᴴA¹/²
ʸB=A KB²/³ ᴴB¹/³
-Refer to the scenario above.What is true about the aggregate production functions?
A) Country A's production function has higher returns to scale.
B) Country B's production function has higher returns to scale.
C) Both countries' production functions have equal returns to increases in K and H.
D) Both countries' production functions have constant returns to scale.

Question

Quizplus · Accepted Answer

Both countries' production functions have constant returns to scale because the sum of the exponents of K and H in each function equals 1.

Scenario: Assume the Following Aggregate Production Functions for Two Countries