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Constant returns to scale is also known by which of the following names?
ALinear homogeneous production function
BLaw of diminishing returns
CIso-product mapping function
DCobb-Douglas equilibrium function
Answer & Solution
Correct answer: A. Linear homogeneous production function
1. Under constant returns to scale, increasing all inputs by a factor k raises output by the same factor k.
2. This property gives the function its alternative name, the linear homogeneous production function.
3. So the answer is linear homogeneous production function.
4. The law of diminishing returns is a short-run single-variable law, and the other two are not recognised names for constant returns to scale.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit I "Theory of Production", p.21_
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