Consider the production function Q = F(L,K) = 5L2K2. Does this technology have increasing, decreasing or constant returns to scale? Explain your answer in two different ways.
What will be an ideal response?
First, consider what happens when both inputs are doubled:
F(2L, 2K) = 5(2L)2(2K)2 = (5)(4)(4)(L2)(K2) = 16(5L2K2) = 16F(L, K)
Since the doubling of the inputs leads to more than a doubling of the output, the production function exhibits increasing returns to scale. These can also be seen by the fact that the production function is a Cobb-Douglass production function with ? + ? = 4 >1, which implies increasing returns to scale.
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