1 What do we mean by a production function Interpret the fol

1. What do we mean by a \"production function\" Interpret the following production functions. (a) Q = 50LiK¼ (b) Q = 640K L2-K2L3

Solution

The functional relationship between input and output is known as the production function. It shows the effect of change in the inputs on output.

A.

Q=50L^3/4K^1/4

^=3/4+1/4

⁼¹

^{since the sum of the exponent is 1, so this production function shows constant return to scale.}

^B.

Q=640KL²-K²L³

Since KL2 is common of the given equation and the sum of the power is;

1+2

=3 >1

so this production shows increasing return to scale.