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:
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:
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Linear homogeneity matters.
Updated On: Dec 21, 2024
- 2
- greater than 2
- less than 2
- 1
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The Correct Option is A
Solution and Explanation
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).
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