Answer to Question #128389 in Economics for Asad

Question #128389

Suppose the production function of the United Auto Industries (Pvt) Ltd according to degree of power is Q = 10 + 27L + 6L2 – 12L3 where Q and L refer, respectively, to the quantities of output and labor.
a. Being a student of economics identify the type of production function given in above case and also interpret the given production function.
b. Suppose United Auto Industries (Pvt) Ltd. uses labor, capital, and energy inputs in fixed proportion for the production of 4-stroke motorcycles. Does this means return to scale will be constant? Give your answer with logic.

Expert's answer

a) it is a linear function. In which, up to a certain value L3, Q will increase and above this value will decrease.

b) No, because L3 increase exponentially with degree 3, and one of the moment will be bigger than sum of L and L2