Question

If Y = F(L,K) is a linear homogeneous production function, then multiplying all inputs by a constant factor α = 2 results in output increasing by a factor of:

• A. 2
• B. greater than 2
• C. less than 2
• D. 1

Hint:

Linear homogeneity matters.

Answer 1

The Correct Option is A

For a linear homogeneous production function, multiplying all inputs by a constant factor α will result in the output increasing by the same factor. Hence, when α = 2, the output will increase by a factor of 2.

Thus the correct answer is (a).