Let the Production Function Be Q = AL^aK^b

question 59

Multiple Choice

Let the production function be q = AL^aK^b. The function exhibits constant returns to scale if

• A)a + b = 1.
• B)a + b > 1.
• C)a + b < 1.
• D)Cannot be determined with the information given.

---

Definitions:

Average Inventory

The mean stock level held by a company over a certain period, calculated to understand inventory trends and management effectiveness.

Optimal Order Quantity

Optimal Order Quantity is the ideal amount of inventory a business should purchase to minimize costs while meeting demand without overstocking or understocking.

Economic Order Quantity

A formula used to determine the optimal order quantity that minimizes the total inventory holding costs and ordering costs.

Flow Time

The total time it takes for a product to move through a production process, from start to finish, including both processing and waiting times.