A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function C = L^0.5M⁰^.75. This production function exhibits A) decreasing returns to scale for all output levels B) constant returns to scale for all output levels C) increasing returns to scale for all output levels D) no clear pattern of returns to scale

Question

Quizplus · Accepted Answer

The production function C = L^0.5 * M^0.75 has exponents that sum to 1.25 (0.5 + 0.75), which is greater than 1, indicating increasing returns to scale.

A Farmer Uses M Units of Machinery and L Hours