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nature of returns of scale

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Consider the production function Q=100L^.5K^.4. Suppose L=1 and K=1 so that Q=100.

If L is increased 1 percent, that is to L=1.01 with the capital unchanged, what is the resulting percentage increase in output?

Describe the nature of returns of scale for this production function.

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Solution Summary

The nature of returns of scale is explicated.

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Q=100L^0.5K^0.4 L=1, K=1 Q=1
Now if L=1.01
we have Q=100*1.01^0.5*1^0.4=100.499

To check return ...

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