A NOTE ON THE CHARACTERIZATION OF THE NEOCLASSICAL PRODUCTION FUNCTION

Andreas Irmen and Alfred Maussner ()

Macroeconomic Dynamics, 2017, vol. 21, issue 7, 1827-1835

Abstract: We study production functions with capital and labor as arguments that exhibit positive, yet diminishing marginal products and constant returns to scale. We show that such functions satisfy the Inada conditions if (i) both inputs are essential and (ii) an unbounded quantity of either input leads to unbounded output. This allows for an alternative characterization of the neoclassical production function that altogether dispenses with the Inada conditions. Although this proposition generalizes to the case of n > 2 factors of production, its converse does not hold: 2n Inada conditions do not imply that each factor is essential.

Date: 2017
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