Asked by Benny Csillag on Apr 28, 2024
Verified
A firm has a production function f(x, y) 0.70(x0.20 y0.20) 4 whenever x 0 and y 0.When the amounts of both inputs are positive, this firm has
A) increasing returns to scale.
B) decreasing returns to scale.
C) constant returns to scale.
D) increasing returns to scale if x y 1 and decreasing returns to scale otherwise.
E) increasing returns to scale if output is less than 1 and decreasing returns to scale if output is greater than 1.
Production Function
An equation that describes the relationship between the quantities of productive factors used and the amount of product obtained.
Returns To Scale
Describes how the output of a production process changes as all inputs are scaled up or down by the same proportion.
Input
Resources used in the production process to generate output, including labor, capital, materials, and energy.
- Determine the distinctions in scale returns (intensifying, waning, unaltered) by inspecting the exponents in production functions.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
B
Explanation :
The production function exhibits decreasing returns to scale because the sum of the exponents on x and y (0.2 + 0.2 = 0.4) is less than 1, indicating that doubling the inputs will result in less than double the output.
Learning Objectives
- Determine the distinctions in scale returns (intensifying, waning, unaltered) by inspecting the exponents in production functions.