Asked by Zahra Al-Radwan on May 12, 2024

verifed

Verified

If the production function is f(x, y) min12x, 3y, then there is convexity in production.

Convexity

In economics and finance, convexity refers to the shape of the curve that demonstrates how the duration of a bond changes as the interest rate changes.

Production Function

An equation that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs.

Input

Resources used in the production process to create goods or services, including labor, materials, and capital.

  • Comprehend the meaning and implications of convexity in production functions.
verifed

Verified Answer

MC
Melinda CooperMay 15, 2024
Final Answer :
True
Explanation :
If the production function satisfies the property of convexity, then it should satisfy the following condition:
f(αx1+(1-α)x2, αy1+(1-α)y2) ≤ αf(x1, y1) + (1-α)f(x2, y2)
where α is a scalar parameter between 0 and 1, and (x1,y1) and (x2,y2) are two different input combinations.
In this case, we can verify that the production function satisfies the above condition for any values of (x1,y1) and (x2,y2), and for any value of α between 0 and 1. Therefore, we can conclude that the production function is convex.