GK
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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0
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1
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-1
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Detailed explanation-1: -If = 1, any change in K/L will be matched by a proportional change in w/r and the relative income shares of capital and labor will stay constant. Any increase in the capital-labor ratio over time will be exactly matched by a percentage increase in the MRTS and an identical percentage increase in w/r.
Detailed explanation-2: -If the exponents sum to 1, you have constant returns to scale. If the exponents sum to less than 1, you have decreasing returns to scale. If the exponents sum to more than 1, you have increasing returns to scale.
Detailed explanation-3: -This production function is linear homogeneous of degree one which shows constant returns to scale, If + = 1, there are increasing returns to scale and if + < 1, there are diminishing returns to scale. ADVERTISEMENTS: 6.