According to the chief engineer at the Zodiac Company, Q = ALK , where Q is the output rate, L is the rate of labor input, and K is the rate of capital input. Statistical analysis indicates (regression analysis) that = 0:8 and = 0:3. The rm's owner claims the plant has increasing returns to scale.
a. Is the owner correct?
b. If were 0.2 rather than 0.3, would she be correct?
c. Does output per unit of labor depend only onand ? Why or why not?