Does the placement of the function change? In this event, you can describe the placement by referring to the points of the compass. For example, proportionally higher
cost at every output level might be described as
N,
lower at every output would be
S,
and a stretching both upward and outward would be
NE,
and so on.
Note:
The
N,
S,
E,
W
descriptions are not unique, but they offer a ready way to describe the
stretching of curves. For example, if a curve is a ray and remains a ray but becomes steeper,
this could be viewed as either an N or a W movement.
Placement descriptions are perhaps most easily seen by focusing on a single LR/
SR tangency and seeing how it changes as the parameter changes. For example, one
might start from the LR/SR tangency for the second smallest plant size in the figure
(the one with
K
5 1). The tangency in each panel occurs at (1,2) given the initial parameter
values. What happens to this tangency in each panel as each parameter changes?
A copy of this table is available on a separate worksheet on this file. You can fill it in
electronically; then use Copy in Excel; then open Word and use Paste Special, Enhanced
Metafile to transfer this to a Word document.
Provide short answers to the following two questions.
a. Which of the five parameters altered returns to scale, and in which direction?
b. Of the factors that did not alter returns to scale, what did they alter?