Can you please give me 5 intelligent questions about this power point to ask to
ID: 1110379 • Letter: C
Question
Can you please give me 5 intelligent questions about this power point to ask to the presenter?
RETURNS TO SCALE
Return to scale - degree by which output changes as a result of a
given change in the quantity of all inputs used in production.
3 Types of Returns to Scale:
Constant Returns to Scale - Occurs if the quantity of all inputs
used in production is increased by a given proportion and output
increases in the same proportion.
Increasing Returns to Scale- If the output increases in the same
proportion.
Decreasing Returns to Scale- If the output increases by a
smaller proportion.
Constant Returns to Scale
The constant returns to scale are attributed to the limits of
the economies of scale. With expansion in the scale of
production, economies arise from such factors as
indivisibility of fixed factors, greater possibility of
specialization of capital and labor, use of labor saving
techniques of production, etc.
Increasing Returns to Scale
Causes of increasing returns to scale:
1. Technical and Managerial Indivisibilities
2. Higher degree of specialization
3. Dimensional Relations
As the scale of operation increases, a greater division of
labor and specialization can take place and more
specialized and productive machinery can be used.
Decreasing Returns to Scale
Causes of decreasing returns to scale:
Typically because as the scale of operation increases, it
becomes ever more difficult to manage the firm
effectively and coordinate the various operations and
divisions of the firm.
EMPIRICAL PRODUCTION FUNCTIONS
In honor of Charles W. Cobb and Paul H. Douglas who
introduced this function in the 1920’s
Q=AKaLb
Q= Output
K= Capital
L = Labor
A, a, b = Parameters to be estimated empirically
Cobb-Douglas Production Function
The exponents of K and L represent the output elasticity of labor
and capital, and the sum of the exponents measures the returns to
scale.
The function can easily be extended to deal with more than two
inputs (capital, labor, and natural resources or capital, production
labor, and nonproduction labor)
The function can be estimated either from data for a single firm,
industry, or nation over time, or for a number of firms, industries,
or nations at one point in time.
Cobb-Douglas Production Function
Difficulties Faced:
- If the firm produces a number of different products, output
may have to be measured in monetary rather than in physical
units.
- Only the capital consumed in the production of the output
should be counted, ideally. However, the total stock of
capital has to be used instead.
Cobb-Douglas Production Function
Explanation / Answer
1) What do you mean by return to scale ? Explain various types of return to scale..
2) Explain the concept of return to scale .State the reason for constant,decreasing and increasing return to scale.
3) Explain economic of scale .Economic of scale is the attribute of which type of return to scale?
4) what are decreasing return to scale .what causes decreasing return ?
5) What do you mean by Cobb - Douglas production function.what are their use?