[Solved] ECO404 GDB Spring 2020
ECO404 Managerial Economics GDB Solution & Discussion Spring 2020
ECO404 GDB Solution idea:
Cubic production function: In above case cubic production function allows for both increasing and decreasing marginal productivity day by day the market share of united motorcycles is increasing. At the first, there is increasing and decreasing return to scale, the graph of this production is illustrated as follows.
(a) So following the above figure which shows the working of above function we can see is increasing return to scale as we move from point zero point A, and there is diminishing return from point A TO B and from point C To onwards there are decreasing or negative return to scale.
(b) When an increase in inputs (labor, capital and energy) cause the same proportional increases the number of inputs leads to an equivalent increase in output. CRS occur when increasing the number of inputs leads to an equaling outputs. But it does not mean that fixed proportion of all inputs would return in constant returns to scale. Because there are functions which usually the impact of changes on specific changes like capital and labor would result on the basis of their qualities as well as their functions. Suppose in current case, we know the capital is required in much quantity then the labors, so in case, if we allocate fixed proportion to both, would be result in decreasing return to scale.
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