Suppose that the production function is f (x1, x2) =(min{x1, 2x2}).5. A) There are constant returns to scale. B) The cost function is a min function. C) If the price of x₁ is more than twice the price of x₂, only x₂ is used in production. D) A cost-minimizing firm producing 5 units of output will use 25 units of x₁ and some x₂. E) The cost function is a linear function of output.

Question

Quizplus · Accepted Answer

To minimize the cost of producing 5 units of output, the firm must use 5 units of x₁ and 2.5 units of x₂, as that combination will result in the lowest cost of production. Therefore, statement D is true. Statement A cannot be determined from the given production function as it does not provide information about the relationship between input and output. Statement B is false as the production function is not related to the cost function. Statement C is false as the production function states that x₁ is used until it becomes twice as expensive as x₂, after which x₂ is used. It does not depend on the actual prices of the inputs. Statement E is false as the cost function is not provided in the given information.

Suppose That the Production Function Is F (X1, X2) =(Min{x1