Question

Use following information to answer Q31-Q35

A firm produces output according to the following function: q = f(L,K) = L0.5K0.5 . The cost of labor is $4 per hour and the rental cost of capital is $12 per hour. The production function exhibits
A. constant returns to scale.
B. increasing returns to scale.
C. decreasing retums to scale.
D. increasing returns to scale for small levels of output, then constant retums to scale, and eventually decreasing returns to scale as output increases,

Answer 1

A. Constant returns to scale.

Step-by-step explanation:

In the given output function the labor and capital both have function of 0.5 which means if more labor is required then more capital needs to be injected. In the current output there is constant return to scale as labor and capital both are equally employed.