Problem: According to the chief engineer at the Zodiac Company, Q=AL^a K^b, where Q is the output rate, L is the rate of labor input, and K is the rate of capital input. Statistical analysis indicates that a=0.8 and b=0.3. The firm's owner claims the plant has increasing returns to scale.
A) Is the owner correct?
B) If b were 0.2 rather than 0.3, would she be correct?
C) Does output per unit of labor depend only on a and b? Why or why not?