Suppose a firm's production function can be specified as Q = 10KL. This firm's cost function exhibits A) economies of scale B) diseconomies of scale C) neither diseconomies nor economies of scale. D) economies of scale for output levels less than some level, Q₁= 1/4, and diseconomies of scale thereafter.

Question

Quizplus · Accepted Answer

The production function Q = 10KL exhibits constant returns to scale, meaning that the ratio of output to inputs remains the same regardless of the scale of production. This implies that the cost function will exhibit economies of scale, where the average cost of production decreases as output increases.

Suppose a Firm's Production Function Can Be Specified as Q