Re: returms to scale..plz help/ Amit Sir

Posted by Amit Goyal on May 31, 2013; 4:25pm
URL: http://discussion-forum.276.s1.nabble.com/returms-to-scale-plz-help-Amit-Sir-tp7581561p7581567.html

For (a), let f(K, L) = 2K + 3L +KL
Consider t > 1,
and let K > 0, and L > 0:
f(tK, tL) = 2tK + 3tL + (tK)(tL) = t(2K) + t(3L) + (t^2)(KL) > t(2K) + t(3L) + (t)(KL) = tf(K, L)
Thus, it does not satisfy decreasing returns to scale.

For (c), let h(K, L) = 100 + 3K +2L  
Consider t > 1,
h(tK, tL) = 2tK + 3tL + 100 = t(2K) + t(3L) + 100 < t(2K) + t(3L) + 100t = th(K, L)
Thus, it satisfy decreasing returns to scale.