Explosive CES Production Function Shatters Law of Diminishing Returns!
The article explores a special case of the CES production function where returns to scale increase and the elasticity of substitution is greater than 1. In this case, as labor or capital approaches infinity, the productivity of both labor and capital increases dramatically, violating the law of diminishing marginal returns. This has important implications for growth theory. The article also establishes boundaries for the capital-labor ratio in this scenario.