ECON 103 Lecture : Chapter_08
13 Jan 2022
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Document Summary
A production function tells us the maximum amount of an output for a given amount of inputs. As unrealistic as it seems this production function describe ethe economic of the firm. And we can break down the formula as labor (l) & capital (k). Therefore, we can conclude that production is simply base on labor and capital. Constant returns to scale mean a doubling of all input leads to a doubling of output. when all the input is increased, the amount of output increases. However, we have little to say about how much output will change when all input change, but in a philosophical sense we will safe when doubling the input, the output double as well. The problem with directly testing for constant returns to scale is we can never be sure we have literally doubled everything exactly. Input are hard to measure, and we are never sure two inputs are always identical.
