The returns to scale of the production function Q = 50 L^0.4 K^0.2 are A)50. B).6. C).8. D)50^0.6.

Question

Quizplus · Accepted Answer

Returns to scale refer to the change in output resulting from a proportional increase in all inputs. In this production function, we can obtain the returns to scale by determining the power to which the sum of all inputs (L+U+P+S+K) is raised in the function. Here, the sum of all inputs is raised to a power of 0.6 (0.4+0.2), which indicates decreasing returns to scale. Therefore, the best choice is B, as it is the only option that reflects this property.

The Returns to Scale of the Production Function Q =