Suppose You Have a Cobb-Douglas Function with a Capital Elasticity

question 6

Multiple Choice

Suppose you have a Cobb-Douglas function with a capital elasticity of output (á) of 0.28 and a labor elasticity of output (â) of 0.84.What statement is correct?

• A) There are increasing returns to scale
• B) If the amount of labor input (L)is increased by 1%,the output will increase by 0.84%
• C) If the amount of capital input (K)is decreased by 1%,the output will decrease by 0.28%
• D) The sum of the exponents in the Cobb-Douglas function is 1.12.
• E) All of the above

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Definitions:

Cash Flow From Operating Activities

A measure of the cash generated or used by a company in a given period for its core business activities.

Operating Activities

Activities that relate to the primary operations of the company, such as selling products or services.

Dividend Payments

Cash or stock distributions made by a corporation to its shareholders from its earnings.

Borrowed Money

Funds that an individual or organization takes from another party under the condition of returning it back in the future often with interest.