This should be 'low hanging fruit, but I seem to be mixed up and would appreciate unambiguous clarity.
CD assumes constant returns to scale. Does this mean;
A. A 1%increase in either Labour AND Capital will produce the same output increase, irrespective of their starting levels I.e. from 2 to 3% increase has same increase in output as from 5 to 6%
B. An INITIAL1% increase in either Labour OR capital will produce the same output increase
I still see references to diminishing marginal returns. Does this mean;
C. A CONTINUAL 1% increase in either Labour OR capital will be subject to diminishing returns I.e going from 5 to 6% capital increase produces lower output rise than from 2 to 3%
I’d be really grateful if someone can clear this up ( I guess I didn’t fully grasp it at level II !) Thanks in advance