Which of the Following Is Not a Distinguishing Characteristic of the Cobb-Douglas

question 47

Multiple Choice

Which of the following is not a distinguishing characteristic of the Cobb-Douglas production function?

• A) The function exhibits constant returns to scale.
• B) The function exhibits diminishing returns.
• C) Capital and labour both earn shares of total income equal to the value of their exponents in the production function.
• D) Labours share of income cannot exceed 0.5.

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Definitions:

Interest Tax Shield

The reduction in income taxes that results from taking the interest expense as a deductible charge.

Capital Structure

The capital structure is the mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity which funds its overall operations and growth.

Tax Rates

The segment of earnings an individual or corporate entity owes to the government in taxes.

Interest Tax Shield

The saving in taxes due to deductible interest expenses, which reduces taxable income and ultimately decreases the tax liability.