Question

A​ Cobb-Douglas production function A. exhibits decreasing returns to scale. B. can exhibit​ constant, increasing, or decreasing returns to scale. C. exhibits constant returns to scale. D. exhibits increasing returns to scale.

Answer 1

The correct answer is C) exhibits constant returns to scale

Step-by-step explanation:

The Cobb-Douglas production function is as follows:

F(K,L) = A× Kα × Lα-1

Where:

• A = Total factor productivy
• K = Capital
• α = Capital share's of income
• L = Labor

This function states that income is divided among the owner's of capital and labor (workers) in similar proportions across time. Like the fundamental production function F(K,L) = K × L it has constant returns to scale.

The property of constant returns to scale establishes that if the factors or production, capital and labor, are increased by a determined proportion, output will increase by the same proportion.