Look at the formula in cell B30 for “Manufactures Produced.” Notice that it refers to both the labor in the manufacturing sector and the physical capital in order to determine production. Is the manufacturing sector constant returns-to-scale in physical capital, or decreasing/diminishing returns, or increasing returns? (1 point) How do you know?
Added by Thomas H.
Step 1
Returns to scale refer to how the output of a production process changes as all inputs are increased proportionally. There are three types: constant returns to scale (output increases proportionally), increasing returns to scale (output increases more than Show more…
Show all steps
Your feedback will help us improve your experience
Carson Merrill and 67 other Microeconomics educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
A Cobb-Douglas production function has the form $$ P=c L^{a} K^{p} \quad \text { with } \alpha, \beta>0 $$ What happens to production if labor and capital are both scaled up? For example, does production double if both labor and capital are doubled? Economists talk about - increasing returns to scale if doubling $L$ and $K$ more than doubles $P$ - constant returns to scale if doubling $L$ and $K$ exactly doubles $P$ - decreasing returns to scale if doubling $L$ and $K$ less than doubles $P$. What conditions on $\alpha$ and $\beta$ lead to increasing, constant, or decreasing returns to scale?
Functions of Several Variables
Contour Diagrams
A firm that employs labor and capital has production function q = LK. What returns to scale does the production function exhibit? Select one: a. decreasing returns to scale. b. increasing returns to scale. c. indeterminate. d. constant returns to scale.
Azat N.
What are Returns to Scale in relation to the production function? How could you go about evaluating the Returns to Scale for a particular production process? How could you determine if it is Increasing Returns to Scale, Decreasing Returns to Scale, or Constant Returns to Scale? a. What is the Returns to Scale for the production function Q = 12L + 15K, and explain how you determined it? b. What is the Returns to Scale for the production function Q = 27L^2K, and explain how you determined it?
Andrew D.
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD