In the long run the Cobb-Douglas production function;Select one:a.becomes steeper due to diminishing marginal returns to capitalb.becomes flatter due to diminishing marginal returns to capitalc.becomes steeper due to diminishing marginal returns to labourd.becomes flatter due to diminishing marginal returns to labour
Question
In the long run the Cobb-Douglas production function;Select one:a.becomes steeper due to diminishing marginal returns to capitalb.becomes flatter due to diminishing marginal returns to capitalc.becomes steeper due to diminishing marginal returns to labourd.becomes flatter due to diminishing marginal returns to labour
Solution
In the long run, the Cobb-Douglas production function can either become steeper or flatter due to diminishing marginal returns. However, it is important to determine whether this is due to diminishing marginal returns to capital or diminishing marginal returns to labor.
To determine the correct answer, we need to understand the concept of diminishing marginal returns. Diminishing marginal returns occur when the addition of one more unit of input leads to a smaller increase in output.
In the case of the Cobb-Douglas production function, which is a mathematical representation of the relationship between inputs and outputs in production, the function is typically written as Y = A * K^α * L^β, where Y represents output, A is a constant factor representing total factor productivity, K represents capital input, L represents labor input, and α and β are the output elasticities of capital and labor, respectively.
If the Cobb-Douglas production function becomes steeper, it means that the output elasticity of capital (α) increases. This can happen if there are diminishing marginal returns to labor. As labor input increases, the additional units of labor contribute less and less to the overall output, causing the production function to become steeper.
On the other hand, if the Cobb-Douglas production function becomes flatter, it means that the output elasticity of labor (β) increases. This can happen if there are diminishing marginal returns to capital. As capital input increases, the additional units of capital contribute less and less to the overall output, causing the production function to become flatter.
Therefore, the correct answer to the question is:
a. becomes steeper due to diminishing marginal returns to capital
Similar Questions
The Cobb-Douglas production function has:Select one:a.has constant returns to scale but diminishing marginal returns to capitalb.has constant returns to scale and increasing marginal returns to capitalc.has increasing returns to scale but diminishing marginal returns to capitald.has decreasing returns to scale and diminishing marginal returns to capital
A short-run production function at some point becomes flatter due to: Group of answer choicesDecreasing returns to scale.Increasing returns to scale.The fact that a firm has to hire poorer quality workers as production increases.Diminishing marginal product.None of the above.
Assuming a Cobb-Douglas production function with constant returns to scale, then, as L rises with K and A constant, it will be the case that:Group of answer choicesThe marginal product of labour will rise and the marginal product of capital will fallBoth the marginal product of labour and the marginal product of capital will fallBoth the marginal product of labour and the marginal product of capital will riseThe marginal product of labour will fall and the marginal product of capital will rise
In the long run the Cobb-Douglas production function;
Consider the following figure:The shape of this production function suggests:a) a constant marginal product of capital.b) a diminishing marginal product of capital.c) a diminishing marginal product of labour.d) an increasing marginal product of capital.e) Not enough information is given
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