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Checking returns to scale

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)

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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.

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