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The original Cobb-Douglas function was given as . It was subsequently rewritten as . What benefit was derived in the revision?

1) the function becomes a non-linear relationship so it would fit to production curves having an "S" shape
2) returns to scale can be shown in the revision
3) returns to scale become constant
4) a and b only
5) a, b, and c

User Denno
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Final answer:

The revision of the Cobb-Douglas function allows it to show and hold constant returns to scale, providing a more accurate representation of production processes and economies of scale.

Step-by-step explanation:

The revision of the original Cobb-Douglas production function was beneficial because returns to scale can be shown in the revision, and returns to scale become constant. The original function depicted a simple linear relationship, but the revision allows for a more accurate representation of production processes by acknowledging the non-linear, bowed-out shape of production curves. This more accurately reflects the idea that as scale increases, the average cost of production declines until a point of constant returns to scale is reached. This is consistent with the observation of economies of scale in the long run, where large-scale producers have an advantage, as the downward-sloping portion of the long-run average cost curve extends over a greater quantity of output. The revision of the function captures the reality that production efficiency changes with scale, which is critical in economic analysis.

User Mads Andersen
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