If Y is a good's output, X is spending to produce a good, $\bar { F }$ is the fixed cost associated with production, and C is the average cost of production, which of the following production functions exhibits increasing returns?

Question

Quizplus · Accepted Answer

The production function $Y = ( X - \bar { F } ) / C$ exhibits increasing returns because as spending X increases, the output Y increases at a decreasing rate of cost C, indicating that the average cost per unit decreases with increased production.

If Y Is a Good's Output, X Is Spending to Produce