Formal Example
The Cobb-Douglas functional form has constant returns to scale when the sum of the exponents adds up to one. The function is:
where and . Thus
But if the Cobb-Douglas production function has its general form
with then there are increasing returns if b + c > 1 but decreasing returns if b + c < 1, since
which is greater than or less than as b+c is greater or less than one.
Read more about this topic: Returns To Scale
Famous quotes containing the word formal:
“The conviction that the best way to prepare children for a harsh, rapidly changing world is to introduce formal instruction at an early age is wrong. There is simply no evidence to support it, and considerable evidence against it. Starting children early academically has not worked in the past and is not working now.”
—David Elkind (20th century)
“This is no argument against teaching manners to the young. On the contrary, it is a fine old tradition that ought to be resurrected from its current mothballs and put to work...In fact, children are much more comfortable when they know the guide rules for handling the social amenities. It’s no more fun for a child to be introduced to a strange adult and have no idea what to say or do than it is for a grownup to go to a formal dinner and have no idea what fork to use.”
—Leontine Young (20th century)