HW chap 7

# Thatiswith2l 2kand2m

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Unformatted text preview: creasing returns to scale? a. The firm has constant returns to scale if: α + β + γ = 1. b. The firm has increasing returns to scale if: α + β + γ &gt; 1. c. The firm has decreasing returns to scale if: α + β + γ &lt; 1. rev is ed jrl 08­09­2011 Worksheet Section: Returns to Scale Jason has a boat­building firm. It uses labor L, capital K, and materials M, to build its boats. Its production function is http://e z to.mhe c loud.mc gr a w- hill.c om/hm.tpx? todo= pr intvie w 5/7 1/21/2014 Assignme nt Pr int Vie w . For what values of α, β, and γ does Jason's technology have constant returns to scale? Increasing returns to scale? Decreasing returns to scale? a. The firm has constant returns to scale if: α + β + γ = 1. b. The firm has increasing returns to scale if: α + β + γ &gt; 1. c. The firm has decreasing returns to scale if: α + β + γ &lt; 1. rev is ed jrl 08­09­2011 Explanation: A firm has constant returns to scale if a proportional change in all inputs produces the same proportional change in output. A firm has increasing returns to scale if a proportional change in all inputs produces more than a proportional change in output. A firm has decreasing returns to scale if a proportional change in all inputs produces a less than proportional change in output. a. In this example, if α + β + γ = 1, then the production function has con...
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## This note was uploaded on 01/22/2014 for the course ECO 3352 taught by Professor Ax during the Fall '13 term at Troy.

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