Explore BrainMass

Explore BrainMass

    Cobb-Douglas Production Function

    Not what you're looking for? Search our solutions OR ask your own Custom question.

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


    I am fairly new to economics with only a basic understand of the topic and because of this I am struggling to answer (and understand the explanation for the answer) a question about the Cobb Douglas production function.

    Q. Under what conditions does a Cobb-Douglas production function (q=AL^(alpha)K^(beta)) exhibit decreasing, constant or increasing returns to scale?

    Alongside this, can someone please breakdown for me how and why '(alpha) + (beta) > 1' would indicate increasing returns. All answers online and in the textbook have been out of my depth in terms of understanding.

    © BrainMass Inc. brainmass.com November 30, 2021, 5:40 am ad1c9bdddf

    Solution Preview

    If the sum of the inputs' exponents = 1 then constant returns to scale.
    If the sum of the inputs' exponents < 1 then decreasing returns to scale.
    If the sum of the inputs' exponents > 1 then increasing returns to scale.

    In the normal capital and labor equation as you stated, (alpha) and (beta) are the exponents. So in this case you would add alpha and beta and see which of the three cases above you ...

    Solution Summary

    The expert examines Cobb-Douglas production functions.