Consider the production function Q=100L^.5K^.4. Suppose L=1 and K=1 so that Q=100
a. If L is increased by 1 percent, that is to L=1.01 with capital unchanged, what is the resulting percentage increase in output?© BrainMass Inc. brainmass.com October 25, 2018, 5:46 am ad1c9bdddf
a. If L is increased by 1 percent, that is to L=1.01 with capital unchanged, what is the resulting percentage increase in output?
Output level for L=1 and K=1 is
Output level for L=1.01 and K=1 ...
Solution discusses the nature of returns to scale for the given production functions along with step-by-step calculations.
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?