Let the production function be q=AL^a*K^b. The function exhibits decreasing returns to scale if
A) a + b = 1.
B) a+ b > 1.
C) a + b < 1.
D) Cannot be determined with the information given.
Answer: a + b < 1.
Let the production function be q=AL^a*K^b. The function exhibits decreasing returns to scale if
A) a + b = 1.
B) a+ b > 1.
C) a + b < 1.
D) Cannot be determined with the information given.
Answer: a + b < 1.