InterviewSolution
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InterviewSolution
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Q = A LB KaHere, Q is the output and L and K represent units of labour and capitalrespectively. A is a positive constant (also called the technology coefficient). aand B are constants lying between 0 and 1.Q (CL, CK) = A (CL)B (CK)a = Acß ca LB Ka = Aca+B LB KaNote that if a+B > 1 there will be increasing returns to scale. If a+B < 1 therewill be decreasing returns to scales. And, if a+b = 1 there will be constantreturns to scale (case of linear homogenous CDPF). Thus, depending on thenature of the CRF, there will be increasing, decreasing or constant returns to |
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