Assume that constant returns to scale exists and that N and K both decrease by 3%.Given this information,we know that
A)output (Y)will decrease 6%.
B)Y will decrease by 3%.
C)Y will decrease by less than 3%.
D)the capital-labor ratio (K / N)will decrease.

Question

Quizplus · Accepted Answer

Under constant returns to scale, if all inputs are scaled down by the same percentage, output decreases by that same percentage. Therefore, if N and K both decrease by 3%, Y will also decrease by 3%.

Assume That Constant Returns to Scale Exists and That N