A firm has a production function f(x, y) = 1.80(x^0.80 + y^0.80)2 whenever x 0 and y 0. When the amounts of both inputs are positive, this firm has A) decreasing returns to scale. B) constant returns to scale. C) increasing returns to scale if x + y 1 and decreasing returns to scale otherwise. D) increasing returns to scale. E) increasing returns to scale if output is less than 1 and decreasing returns to scale if output is greater than 1.

Question

A firm has a production function f(x, y) = 1.80(x^0.80 + y^0.80)2 whenever x > 0 and y > 0. When the amounts of both inputs are positive, this firm has A) decreasing returns to scale. B) constant returns to scale. C) increasing returns to scale if x + y > 1 and decreasing returns to scale otherwise. D) increasing returns to scale. E) increasing returns to scale if output is less than 1 and decreasing returns to scale if output is greater than 1.

Quizplus · Accepted Answer

The production function f(x, y) = 1.80(x^0.80 + y^0.80)^2 exhibits increasing returns to scale because when both inputs are scaled by a factor t > 1, the output increases by a factor greater than t.

A Firm Has a Production Function F(x, Y) = 1