Technology is the known recipes to produce output out of inputs. A production function is a relation between quantities of output and respective quantities of inputs required to produce such quantities given the technology.
With perfect knowledge about the list of inputs, the only logical conclusion is that there can be no more that constant returns to scale. With constant returns to scale there cannot be increasing marginal returns.
So, the apparent phenomena of non-constant returns to scale and increasing marginal returns are logically due exclusively to ignorance about the list of inputs required to produce.
Sunday, August 26, 2012
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