Answer to Question #127284 in Macroeconomics for jon

Question

Consider the following aggregate production function: Y=100×√L×√K, where A is the total factor productivity, K is the amount of capital in the economy, L is the labour force, and Y is the GDP. a. Is this aggregate production function exhibiting the constant returns to scale? Explain how you know. b. Is this aggregate production function exhibiting the diminishing marginal product of capital? Explain how you know.

Answer 1

a. This aggregate production function is exhibiting the diminishing returns to scale, because the degree of both K and L is 0.5.

b. This aggregate production function is exhibiting the diminishing marginal product of capital at some quantity.