RoundBear Posted April 9, 2010 Report Share Posted April 9, 2010 I was wondering can anyone show step by step how this is done Determine whether constant, decreasing, or increasing returns to scale 1) F(K,L) = K^2/L 2) F(K,L) = K+L 3) F(K,L)= square root of K+ square root of L 4) F(K,L)= K^2+L^2 Fg will be given to anyone who gives a clear step by step. Link to comment Share on other sites More sharing options...
lotd Posted April 9, 2010 Report Share Posted April 9, 2010 You just have to compare aF(K,L) with F(aK,aL) where a is a constant greater than 1. If aF(K,L) = F(aK,aL) it is constant EDIT: in the constant case a >=0 If aF(K,L) > F(aK,aL) it is decreasing If aF(K,L) < F(aK,aL) it is increasing 1) F(K,L) = K^2/L F(aK,aL) = a^2 K^2/aL = aK^2/L aF(K,L) = aK^2/L Constant 2) F(K,L) = K+L F(aK,aL)= a + K + a + L = 2a + K + L aF(K,L) = a(K+L) Pretty sure this is decreasing 3) F(K,L)= square root of K+ square root of L F(aK,aL)= root aK + root aL = roota (rootk + rootl) aF(K,L) = a(rootK+rootL) Decreasing 4) F(K,L)= K^2+L^2 F(aK,aL)= a^2 K^2 + a^2 L^2 = a^2(K^2+L^2) aF(K,L) = a(K^2+L^2) Increasing. Pretty sure I remembered this correctly. Hope it helps! Link to comment Share on other sites More sharing options...
RoundBear Posted April 9, 2010 Author Report Share Posted April 9, 2010 Okay imma read through itttt Link to comment Share on other sites More sharing options...
RoundBear Posted April 9, 2010 Author Report Share Posted April 9, 2010 I still dont get it lol. Why is #2 decreasing? 2) F(K,L) = K+L F(aK,aL)= a + K + a + L = 2a + K + L aF(K,L) = a(K+L) I thought you only put the constant a in front of the K and L. So it'll be like F(K,L) = aK+aL hmm would it be better if i just substituted a value for K, L, and a? and then I can just add them up and compare the original F(K,L) to the new F(K2,L2)? Link to comment Share on other sites More sharing options...
lotd Posted April 10, 2010 Report Share Posted April 10, 2010 I still dont get it lol.Why is #2 decreasing? 2) F(K,L) = K+L F(aK,aL)= a + K + a + L = 2a + K + L aF(K,L) = a(K+L) I thought you only put the constant a in front of the K and L. So it'll be like F(K,L) = aK+aL hmm would it be better if i just substituted a value for K, L, and a? and then I can just add them up and compare the original F(K,L) to the new F(K2,L2)? I don't understand what you're saying, but I believe it is decreasing because aF(K,L) is multiplicative as opposed to being additive and a > 1 so that function will eventually dominate and be the upper function. Link to comment Share on other sites More sharing options...
specifics Posted January 17, 2012 Report Share Posted January 17, 2012 this looks like a good place for me to spam Link to comment Share on other sites More sharing options...
AXO Posted January 17, 2012 Report Share Posted January 17, 2012 This is actually a terrible place to spam. Link to comment Share on other sites More sharing options...
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