Question

Bridget's Widgets has hired you as a consultant to analyze its production process and assess if and how it could become more efficient. Bridget informs you that her firm's production process uses three inputs: factory space which she refers to as capital (K), labor (L), and metal alloy materials (M). She believes the production technology obeys the following function: Q=32K¹/² L¹/² M¹/²

where Q is the total quantity produced. The rental rate r for factory space is $10 per unit, the wage w that Bridget pays workers is also $10, and the price per unit of metal (which is fully consumed in the production process) is $2.50. (a) Before doing any math, write down your instinctual prediction about whether the returns to scale for this production process are decreasing, constant, or increasing

Answer 1

The returns to scale for this production process are constant.

Step-by-step explanation:

Based on the given production function Q=32K¹/² L¹/² M¹/², we can predict that the returns to scale for this production process are constant. Returns to scale refer to how changes in inputs affect the level of output. In this case, as the inputs (K, L, M) are increased proportionally, the output (Q) will increase proportionally as well.