Asked by pizza and spagghetti on Jun 15, 2024

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A firm uses 3 factors of production.Its production function is f(x, y, z)  minx3/y, y2, (z4  x4) /y2.If the amount of each input is multiplied by 6, its output will be multiplied by

A) 216.
B) 36.
C) 6.
D) 0.16.
E) The answer depends on the original choice of x, y, and z.

Factors Of Production

The inputs used in the creation of goods or services in order to make an economic profit, including land, labor, capital, and entrepreneurship.

Input

Resources used in the production of goods and services.

Output

The total amount of goods or services produced by an individual or entity in a given period.

  • Understand the ramifications of scaling inputs on the output in production functions characterized by variable returns to scale.
  • Evaluate the form and qualities of production functions involving the use of the min() operation.
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Verified Answer

JS
Jared SmallJun 22, 2024
Final Answer :
B
Explanation :
According to the production function, the output (S) is a function of the inputs x, y, and z. If all of the inputs are multiplied by 6, the new production function would be f(6x, 6y, 6z) = S'.
Substituting 6x, 6y, and 6z into the original production function, we get:
S' = 10 min [ (6x / y)^(1/3) * y^(1/3) * (6z)^(1/3) * (1/3) - (6x)^(1/3) * (y / 6z)^(1/3) * (6z)^(1/3) * (1/3) ]
S' = 10 min [ (6^1/3 * x^1/3 * y^1/3 * z^1/3) - (6^1/3 * x^1/3 * y^1/3 * z^1/3) ]
S' = 0
Therefore, if all inputs are multiplied by 6, the output will be zero. This means that the production function exhibits constant returns to scale (i.e., if inputs are multiplied by a certain factor, output is multiplied by the same factor).
To find the factor by which output is multiplied, we can set the inputs to be equal to some constant k (e.g. k=1) and determine the output, and then set the inputs to be equal to 6k and determine the new output. By dividing the new output by the original output, we can determine the factor by which output is multiplied.
Setting x=y=z=k, we get:
S = 10 min [(k/k)^(1/3) * k^(1/3) * k^(1/3) * (1/3) - k^(1/3) * (k/k)^(1/3) * k^(1/3) * (1/3)]
S = 10 min [(1/3)k^(1/3) - (1/3)k^(1/3)]
S = 0
Setting x=y=z=6k, we get:
S' = 10 min [((6k)/(6k))^(1/3) * (6k)^(1/3) * (6k)^(1/3) * (1/3) - (6k)^(1/3) * ((k)/(6k))^(1/3) * (6k)^(1/3) * (1/3)]
S' = 10 min [(1/3)(6k)^(1/3) - (1/3)(k)^(1/3)]
S' = 10 min [(1/3)(6k)^(1/3) - (1/3)(6k)^(1/3)]
S' = 0
So output is also 0 when inputs are multiplied by 6k. Therefore, the production function exhibits constant returns to scale for any choice of x, y, and z, and the factor by which output is multiplied is equal to the factor by which inputs are multiplied, which is 6. Therefore, the answer is (B) 36.