Explore BrainMass
Share

Checking returns to scale

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Please refer attached file for better clarity of table.

Does the Production Function of Table (below) show constant, increasing or decreasing returns to scale if the firm increases the quantity of labor and capital used from

(a) 2L and 2K to 4L and 4K?
(b) 2L and 4K to 3L and 6K?

Explain work.

Capital (K) 6 10 24 31 36 40 39
5 12 28 36 40 42 40
4 12 28 36 40 40 36 Output (Q)
3 10 23 33 36 36 33
2 7 18 28 30 30 28
K 1 3 8 12 14 14 12
1 2 3 4 5 6
Labor (L)

© BrainMass Inc. brainmass.com October 16, 2018, 11:21 pm ad1c9bdddf
https://brainmass.com/economics/factors-of-production/checking-returns-to-scale-372048

Attachments

Solution Preview

a) 2L and 2K to 4L and 4K?

Output (for 2L and 2K)=18 (Please refer given table)
Output (for 4L and 4K)=40 (Please refer given table)
Output (for 4L and 4K)/Output (for 2L and 2K)=40/18=2.22

Here we observe that both the inputs are ...

Solution Summary

Solution describes the steps to check whether the given production function shows constant, increasing or decreasing returns to scale for the given changes in inputs.

$2.19
Similar Posting

MBA Economics: Returns to Scale

Consider the production function Q=10L-.5L^2+24K-K^2 for L and K in the range 0 to 10 units. Does this production function exhibit diminishing returns to each input? Does it exhibit decreasing returns to scale? Explain.

View Full Posting Details