00:01
So here we're thinking about returns to scale, and let me define that.
00:04
So suppose that you have f of xk and xl, that is you multiply k and l by some factor x, like you double them or triple them or cut them in half, right? if this is equal to xf of kl, what you have here is constant returns, right? and the idea here is that the exponent is one.
00:32
But if you have xaf of kl, where a is less than one, you have decreasing returns.
00:43
And if you have xbf of kl, where b is greater than one, you have increasing returns to scale, right? so you need to plug in for k and l and see if that doubles output more than double.
00:59
Doubles out.
00:59
Right? so for the first one, we have a f of kl is equal to, i think that's k squared l.
01:07
So i'm going to plug in xk, xl.
01:10
This gives me xk squared xl, which is equal to x cubed f of kl.
01:23
So here we have increasing returns to scale.
01:26
Because if you say doubled k and l, you'd be multiplying total output by two to the power of three.
01:32
So here when you double the inputs, output increases by a factor of eight.
01:36
Big increasing returns to scale.
01:38
Now we have f of kl is equal to 10k plus 5l...