The number of boats made in Eurcadia is given by the production function
Nboats = 1.7 K0.7 L0.4
where K is the number of machines used to make boats, and L the number of employees who make boats.
Does the production function for boats imply increasing or diminishing returns to scale? (explain how we can tell). Calculate the number of boats which can be made, in each cell of this table, rounded to the nearest whole number:
........ L=0 L=1 L=2 L=3 L=4 L=5 L=6 L=7
Any help please??? If I was to make it in excel which formulae is appropriate?
Production Function Help!!! Watch
- Thread Starter
- 15-04-2013 14:05
- 16-04-2013 07:44
I don't have time to write the proof but assuming the production function is a Cobb Douglas production function --> it displays increasing returns to scale. A quick trick is to add the indices together. If they are
greater than 1 --> increasing returns to scale
equal to 1 --> constant returns to scale
less than 1 --> decreasing returns to scale
It is only a quick trick --> look at Euler for the proof
Hope this is some help
- 16-04-2013 09:59
Increasing, the exponents sum to greater than 1.