Assume that constant returns to scale exists and that N and K both decrease by 3%. Given this information, we know that
A. output (Y) will decrease 6%.
B. Y will decrease by 3%.
C. Y will decrease by less than 3%.
D. the capital-labor ratio (K/N) will decrease.
Answer:B
Assume that constant returns to scale exists and that N and K both decrease by 3%. Given this information, we know that
A. output (Y) will decrease 6%. B. Y will decrease by 3%. C. Y will decrease by less than 3%. D. the capital-labor ratio (K/N) will decrease.