Quiz 4

Q:  Find the returns to scale and the rate of technical substitution is f(L,K)=L1/3K1/2.

A:  For the returns to scale we need to compare 2*f(1,1) to f(2,2).
    f(1,1)=11/311/2=1.  f(2,2)=21/321/2=21/3+1/2=25/6<2.  
    Since 2*f(1,1) > f(2,2) the production function exhibits decreasing returns to scale.  

    The RTS=MPL/MPK={(1/3)L-2/3K1/2 }/ {(1/2)L1/3K1/2}=2K/3L.