Explore BrainMass
Share

# Does Zodiac Company have increasing returns to scale?

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

According to the chief engineer at the Zodiac Company, Q=AL^a K^b, where Q is the output rate, L is the rate of labor input, and K is the rate of capital input. Statistical analysis indicates that a=0.8 and b=0.3. The firm's owner claims the plant has increasing returns to scale.

A) Is the owner correct?
B) If b were 0.2 rather than 0.3, would she be correct?
c) Does output per unit of labor depend only on a and b? Why or why not?

© BrainMass Inc. brainmass.com October 10, 2019, 1:00 am ad1c9bdddf
https://brainmass.com/economics/production-function/316880

#### Solution Summary

This solution shows how the owner is correct using a Cobb-Douglas production function and determines the returns the plant would receive if b were 0.3 and what else output per unit of labour depends on. This solution is provided in an attached Word document.

\$2.19