Suppose the Production of DVD Players Can Be Represented by the Following

question 56

Multiple Choice

Suppose the production of DVD players can be represented by the following production function: q = L^0.4K^0.4. Which of the following statements is TRUE?

• A)The production function has decreasing returns to scale.
• B)The production function has increasing returns to scale.
• C)The production function has constant returns to scale.
• D)Returns to scale vary with the level of output.

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Definitions:

Deadweight Loss

The loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved, often due to market failure or government intervention.

Excess Burden

The cost to society created by market inefficiency, mainly due to taxes or government policies, that causes a deviation from an optimal allocation of resources.

Mutually Beneficial Exchanges

Transactions that provide benefits to all parties involved, ensuring a win-win situation.

Excise Tax

A tax levied on specific goods, services, or transactions, often aimed at discouraging their use or raising revenue.