What is the firm’s output elasticity and returns to scale?
UWIDEC production function is lnQ = 4.73 + 0.29lnK + 0.68lnL
a) Convert the production function into its normal form.
b) What is the firm’s output elasticity and returns to scale? Explain.
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a) Q = e^4.73 x K^0.29 x L^0.68. This is a Cobb-Douglas Production Function.
b) Output elasticity of capital is 0.29, while output elasticity of labor is 0.68. 0.29 + 0.68 = 0.97 which is less than one. So the firm is experiencing decreasing returns to scale.