A production with the form Q = 40 L^.75 K^.20 will have __________ in the long run. A) increasing returns to scale B) decreasing returns to scale C) constant returns to scale D) diminishing returns to the variable input

Question

Quizplus · Accepted Answer

The production function exhibits diminishing returns to scale because if all inputs are increased by a factor of k, then the output will increase by a factor of k^(1.75+1.20)KS1P0, which is less than k^2. This means that as inputs are increased proportionally, the increase in output will be less than proportional, indicating decreasing returns to scale.

A Production with the Form Q = 40 L