Can someone please explain, preferably with examples how the assumption of constant returns to scale implies that %∆TFP is zero, so that equal percentage changes in labor and capital will produce the same percentage change in real output.
because the elasticity of labor and capital must add up to 1, so if labor is 0.5 and capital is 0.5 and each increases by 5% then your growth will be…*drumroll* 5%. Meanwhile, if the change in TFP is 1%, then growth is 6%
The assumption of constant returns to scale _ doesn’t _ imply that %∆TFP = 0.
The assumption of constant returns to scale is that _ if _ %∆TFP = 0, and %∆K = %∆L, then %∆Y = %∆K = %∆L.
I wrote an article on the Cobb-Douglas production function that may be of some help here: http://financialexamhelp123.com/cobb-douglas-production-function/