If Output Is Described by the Production Function Y =

question 118

Multiple Choice

If output is described by the production function Y = AK0.2L0.8, then the production function has:

• A)constant returns to scale.
• B)diminishing returns to scale.
• C)increasing returns to scale.
• D)a degree of returns to scale that cannot be determined from the information given.

---

Definitions:

Budget Constraint

The limitation on the consumption bundles that a consumer can afford given their income and the prices of goods.

Optimum Market Basket

The combination of goods and services that maximizes a consumer’s utility for a given income and prices, representing the most preferred point on their budget line.

Indifference Curves

Graphical representations in microeconomics showing combinations of two goods that give a consumer equal satisfaction and utility.

Commodity Space Diagram

A graphical representation used in economics to show all possible combinations of two goods that an economy can produce using all available resources and technology.