Economics · Production Theory - Cobb-Douglas Function
In a Cobb-Douglas Production Function, what is the value of the elasticity of substitution, and how are the returns to scale determined?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The elasticity of substitution is unitary, and returns to scale are determined by the sum of its exponents.✓
- 2The elasticity of substitution is zero, and returns to scale are determined by the fixed technical ratio of inputs.
- 3The elasticity of substitution takes any non-unitary constant value, and returns to scale are determined solely by the efficiency parameter.
- 4The elasticity of substitution is infinite, and returns to scale are determined by the constant rate of factor substitution.
Correct answer
The elasticity of substitution is unitary, and returns to scale are determined by the sum of its exponents.
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