CFA Practice Question

There are 253 practice questions for this study session.

CFA Practice Question

Let α = 1/3 in the Cobb-Douglas production function. If both L and K decrease by 50%, the output will decrease by:
A. 25%
B. 50%
C. Cannot be calculated.
Explanation: This is what "constant returns to scale" means.

User Contributed Comments 3

User Comment
tylaw Y=.5^1/3*.5^2/3 = .5
endurance Alpha is constant, but K and L decreases. Question asks for change, not level.
gnrocks Constant return to scale : "increasing/decreasing all inputs by fixed percentage leads to same percentage increase/decrease in output". So it is 50% without any calculation.
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