Answer to Question #248775 in Macroeconomics for Mukuture Kandjii

Question

A) Describe the properties of Cobb-Douglas production function with respect to returns to scale (10)
B) Discuss the sources of risk and uncertainty in production of agricultural goods (

Answer 1

a. The Cobb Douglas production function {Q(L, K)=A(L^b)K^a}, exhibits the three types of returns: If a+b>1, there are increasing returns to scale. For a+b=1, we get constant returns to scale. If a+b<1, we get decreasing returns to scale.

b. The sources of uncertainty and risk in agriculture are numerous and diverse, ranging from events related to climate and weather conditions to animal diseases; from changes of prices in agriculture products to fertilizer and other input; and from financial uncertainties to policy and regulatory risks.