For what values of a and b will the following production function exhibit increasing, decreasing or constant returns to scale? q = (La + Ka)1/b
What will be an ideal response?
Let q = f(L,K). Then
f(2L,2K) = ((2L)a+(2K)a)1/b
= 2a/bf(L,K)
for a > b, IRTS
for a < b, DRTS,
and for a = b, CRTS.
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