CFA Practice Question

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CFA Practice Question

Which statement is true regarding the Cobb-Douglas production function?
A. If both inputs are increased proportionately there are no diminishing marginal returns.
B. The value of alpha is between -1 and 1.
C. The larger the value of alpha, the larger the MPL (marginal productivity of labor).
Explanation: B is false. The range is 0 and 1. C is false too. The MPK gets larger if the alpha gets closer to 1. In this case the next unit of capital increases output almost as much as the previous unit of capital.

User Contributed Comments 1

User Comment
JMBrown It says MPL, not MPK. Wouldn't C be true also? It would work in the inverse because it uses 1-alpha.
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