Interpret the coefficents What can be said about the returns

Interpret the coefficents. What can be said about the returns to scale?

Solution

Here the independent variables are of logarithmic form, which means that a Cobb Douglas production function was the original form of the production function. Now if we add up the two coefficients of the slope variables lnL and lnK then we get 0.36 + 0.64 =1 (approx.). Thus as the sum of the slope coefficients is almost exactly 1 this means that we have constant returns to scale. Thus this is an original Cobb Douglas production function where if we double inputs then we exactly double outputs.