Question: Consider the production function: F (L, K) = L 1/3 K 1/3 Suppose the wage rate (price per unit of labour), w, is 2 and

Consider the production function:

F (L, K) = L1/3K1/3

Suppose the wage rate (price per unit of labour), w, is 2 and the capital rental rate (price per unit of capital), r, is 1.

  1. Does this production function exhibit increasing, decreasing or constant returns to scale? Explain
  2. Now consider the production function: F (L, K) = L2/3K1/3, Does this production function exhibit increasing, decreasing or constant returns to scale? Explain.

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