Reference no: EM131613544

Question: A Cobb-Douglas production function has the form

P = cL^αK^β with α, β > 0

What happens to production if labor and capital are both scaled up? For example, does production double if both labor and capital are doubled? Economists talk about

• increasing returns to scale if doubling L and K more than doubles P,

• constant returns to scale if doubling L and K exactly doubles P,

• decreasing returns to scale if doubling L and K less than doubles P. What conditions on α and β lead to increasing, constant, or decreasing returns to scale?