Assume Firm Y\'s production function is given by the following Cobb Douglas equa

Question

Assume Firm Y's production function is given by the following Cobb Douglas equation: Q = 0.5 x L0.6 x K0.5 where L denotes labor and K denotes capital. a. Does the production function exhibit increasing, decreasing or constant returns to scale? Explain. b. If labor hours increase by 10%, what is the percentage change in output? Explain. c. If capital decreases by 10%, what is the percentage change in output? Explain. d. If the number of labor hours increases by 10% and the number of hours of capital used decreases by 10%, what is the percentage change in output?

Explanation / Answer

a)increasing,as output is proportional to labour and capital.So,it exhibits increasing return to scale. b)as it is directly proportional,it also increases by 10% c)as it id directly proportional,it also decreases by 10% d)as both are proportional ,1.1*0.9=0.99,it decreases by 1%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.