6 of 11 (5 complete) xt Exercise 5.4 e Blackberry production function indicated

Question

6 of 11 (5 complete) xt Exercise 5.4 e Blackberry production function indicated in the text is Q-2.83 152K0 82 hore L is labor and K is capital. pple at al. (2010) estimate that the production function for U.s. housing is where L is land and M is an aggrogate of all other mobile, nonland factors, which we call matorials. Haskel and Sadun (2012) estrmate the production function for UK supermarkets is where L is labor, K is capital, and M is materials. What kind of retums to scale do these production functions exhibi? Q. 1.380144M0856 The production function Q-2.83 12K0 a2 A. always echibts constant returns to scale. B. exhibits decreasng returns to scale it L and K are less than one. C. always exhbits de reasing re turns to scale. O D. aways exhibits increasing returns to scale C E. exhibits increasing returns to scale if L and K are greater thanone

Explanation / Answer

Sum of factors a and b is: 1.52 + 0.82 = 2.34

Since the sum is greater than 1, there will be increasing returns to scale.

As per the rule of returns to scale,

If a+b < 1, there are decreasing returns

If a+b = 1, there are constant returns

If a+b > 1, there are increasing returns

Thus, the correct option is (d) always exhibit increasing returns to scale

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