A firm's production function is Y=F(K,L). If the firm doubles both K and L, output less than doubles. This implies

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The question describes a production function Y = F(K, L). When both inputs K and L are doubled, the output increases by less than a doubling, i.e., Y' < 2Y. 
Option 1: constant returns to scale would mean that doubling K and L would double output exactly, so Y' = 2Y. This contradicts the given condition, so the statement is incorrect.
Option 2: decreasing returns to scale exactly captures the scenario where proportional increases in all inputs lead to a less-than-proportional increase in output. Since doubling both inputs yields less than double the output, this option correctly reflects the described behavior.
Option 3: increasing returns to scale would imply that doubling inputs would more than double output (Y' > 2Y). The situation described does not fit this, so this option is not accurate.
Option 4: diminishing marginal products focuses on the idea that adding more of a single input, holding others constant, eventually yields smaller incremental output. This concept concerns marginal productivity, not the overall scale effect when all inputs are scaled up, so it does not address the scenario given and is therefore not the correct description of the situation.
Thus, the statement that matches the description is that the production function exhibits decreasing returns to scale, since output grows by less than a proportional amount when all inputs are scaled up together.

ECON_002_001_25F Problem Set 2

A firm's production function is Y=F(K,L). If the firm doubles both K and L, output less than doubles. This implies

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ECON_002_001_25F Problem Set 2

A firm's production function is Y=F(K,L). If the firm doubles both K and L, output less than doubles. This implies

View Explanation

Log in for full answers

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Indivisibility of capital causes _ returns to scale due to in the __ production model.