A Cobb-Douglas production function A. exhibits decreasing returns to scale. B. can exhibit constant, increasing, or decreasing returns to scale. C. exhibits constant returns to scale. D. exhibits increasing returns to scale.

Question

Ramiro Bean

Social Studies

3 January, 19:09

A Cobb-Douglas production function A. exhibits decreasing returns to scale. B. can exhibit constant, increasing, or decreasing returns to scale. C. exhibits constant returns to scale. D. exhibits increasing returns to scale.

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Answers (1)

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Jaida Ochoa · Answer 1

The correct answer is C) exhibits constant returns to scale

Explanation:

The Cobb-Douglas production function is as follows:

F (K, L) = A * Kα * Lα-1

Where:

A = Total factor productivy K = Capital α = Capital share's of income L = Labor

This function states that income is divided among the owner's of capital and labor (workers) in similar proportions across time. Like the fundamental production function F (K, L) = K * L it has constant returns to scale.

The property of constant returns to scale establishes that if the factors or production, capital and labor, are increased by a determined proportion, output will increase by the same proportion.