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Calculating production elasticities

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1) Q=75K^.75 L^.25

2) Q=1.4K^.70 L^.60

3) Q=1.4A^.15 B^.40 C^.45

Describe whether constant, increasing, or decreasing returns to scale.

4) For Q=1.4K^.70 L^.60:

Production elasticity of capital (K)

Production elasticity of labor (L)

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Solution Summary

Solution describes the steps to determines whether given production functions exhibit increasing, decreasing or constant returns to scale. It also provides step by step method to calculate production elasticities.

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1)Q=75K^.75 L^.25
Sum of exponents=0.75+0.25=1.00
Sum of exponents is equal to 1. It exhibits constant returns to scale.

2)Q=1.4K^.70 L^.60
Sum of exponents=0.70+0.60=1.30
Sum of exponents is greater than 1. It ...

Solution provided by:
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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