Do Homework Chapter 6 Homework Score 0 of 1 pt Concept Quest

Do Homework: Chapter 6 Homework Score: 0 of 1 pt Concept Question 5.1 HW Score: 70%, 10.5 qs 10L0.87K0.99 ca () More in the

Solution

To compute the returns to scale in case of Cobb Douglas production function, we add the coefficients of labor and capital in the production function. If the sum of the coefficients is greater than one, then the production function has constant returns to scale, if the sum of the coefficients is less than 1, then the production function has decreasing returns to scale and if the sum of the coefficients is equal to one, then the production function has constant to scale. In the above example, sum of coefficients is 0.87 + 0.99 = 1.86 which is greater than 1, and hence the production function has increasing returns to scale. Returns to scale equal 1.86.