if the exponents in the production function were 0.30 for x₁ and 0.20 for x₂, this production function would exhibit (constant, increasing, decreasing)returns to scale and (would, would not)have diminishing technical rate of substitution. A)decreasing, would not B)constant, would not C)increasing, would D)constant, would E)decreasing, would

Question

Quizplus · Accepted Answer

The sum of the exponents in each term of the production function is 0.30+1+1+0.11+0.20+1+1+0.12=4.84 for x₁ and 0.20+1+1+1+1+1+0.12=5.32 for x₂. Since both are less than 6, which is the minimum value for increasing returns to scale, the production function exhibits decreasing returns to scale. Also, both terms have exponents less than 1, which means the technical rate of substitution between inputs is diminishing, hence the answer is "would".

If the Exponents in the Production Function Were 0