Suppose the production of mp3 players can be represented by the following production function: Which of the following statements is (are)TRUE?

Question

Suppose the production of mp3 players can be represented by the following production function:  Which of the following statements is (are)TRUE?

Quizplus · Accepted Answer

A) The production function has decreasing returns to scale.
B) The marginal productivity of labor falls as labor increases in the short run.
C) Capital and labor can be substituted for one another.
D) All of the above.

B) The marginal productivity of labor falls as labor increases in the short run because of the assumption of the law of diminishing marginal returns. As more labor is added, it becomes less efficient due to crowding and lack of resources.

C) Capital and labor can be substituted for one another if they are perfect substitutes, which is not explicitly stated in the production function equation given in the question. However, it is possible for this to occur in certain situations.

Suppose the Production of Mp3 Players Can Be Represented by the Following