Question

A farmer uses T units of landand L hours of labor to produce C tons of corn, with the following production function C = L3/4T. Suppose the amount of land,T, is fixed, that is the farmer cannot use more land. This production function exhibits

A.increasing returns to labor.
B.constant returns to labor.
C.diminishing returns to labor.
D.no clear pattern of returns to labor.

Answer 1

Option (C) is correct.

Step-by-step explanation:

Land is a fixed and cannot be changed, so it is like a scenario of short run production, this is because all of the inputs that are used for the production of goods and services cannot be changed.

Therefore, the increasing returns to scale, constant returns to scale and decreasing returns to scale will not be applied here.

In short run, diminishing return to labor is achieved in the production at the firm level.

At equation if k unit of labor is increased, then:

`C(kL, T)= (kL)^(3/4)* T`

`C(kL, T)= k^(3/4)* L^(3/4)* T`

`C(kL, T) = k^(3/4)* C(L, T)`

Now, if there is an increase in the labor by k units then as a result output only increases by
`k^(3/4)` units.

It shows the condition of diminishing return to labor.