00:01
So this is all about knowing the definition of returns to scale, right? the idea of constant, constant, can't spell, constant returns to scale is defined by if for some function, let's use a production function here, k and l, f of xk and xl is equal to x, f of k of k and l, so the idea being that is that if you multiply the inputs by x, do you get to multiply the outputs by x? so if you scale up your capital and labor by 20 percent, do you get 20 percent more output, more than 20 percent output or less than 20 percent output, right? so if we have decreasing returns to scale, what we get is that f, x, k, x, l is equal to x to the a, f of k, l, where a is.
01:00
Less than one.
01:01
So as opposed to getting a hundred percent of the increase, we scale up capital and labor by say 20 percent, x, we get, you know, less than 20 percent.
01:10
And increasing returns to scale means that we have, if we multiply the inputs by a certain number, we get a number out which gives you more than 20 percent, right? so if you scale up the inputs by 20 percent, maybe you get 30 percent more output.
01:27
So for the first one here, we have, um, or sorry i should put q it seems like we're using q here q is equal to 50 k to the 0 .25 l to the 0 .25 right this is my fkl so now what i'm going to do is rewrite this i'm going to imagine that we have 50 i'm going to increase k by some factor x and i'm going to increase l by some factor x up and then you see that you can multiply this out...