A firm has the production function f(x₁, x₂)= (x^b₁ . x_b²)c, where b 0 and c 0.This firm will have A)increasing returns to scale if and only if 2b + c 1. B)increasing returns to scale if and only if bc 1. C)increasing returns to scale if and only if b + c 1. D)constant returns to scale if and only if c = 1. E)constant returns to scale if and only if b = c.

Question

A firm has the production function f(x₁, x₂)= (x^b₁ . x_b²)c, where b > 0 and c > 0.This firm will have A)increasing returns to scale if and only if 2b + c > 1. B)increasing returns to scale if and only if bc > 1. C)increasing returns to scale if and only if b + c > 1. D)constant returns to scale if and only if c = 1. E)constant returns to scale if and only if b = c.

Quizplus · Accepted Answer

The production function exhibits increasing returns to scale if the sum of the exponents of the inputs, when multiplied by the scaling factor, is greater than 1. Here, the condition is bc > 1.

A Firm Has the Production Function F(x1, X2)= (Xb1

A Firm Has the Production Function F(x₁, X₂)= (X^b₁