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According to the chief engineer at the Zodiac Company, Q=ALaKb, 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?

Microeconomics, Economics

  • Category:- Microeconomics
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