A Firm Has a Production Function F(x, Y) = 1

question 26

Multiple Choice

A firm has a production function f(x, y) = 1.80(x^0.80 + y^0.80) ³ whenever x > 0 and y > 0. When the amounts of both inputs are positive, this firm has

• A) increasing returns to scale if x + y > 1 and decreasing returns to scale otherwise.
• B) decreasing returns to scale.
• C) constant returns to scale.
• D) increasing returns to scale.
• E) increasing returns to scale if output is less than 1 and decreasing returns to scale if output is greater than 1.

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Definitions:

Scarce Supply

A situation where the availability of a product or service is limited relative to the desire or demand for it.

Market System

A market economy characterized by investment, production, and distribution decisions that are influenced by the forces of supply and demand, with the prices of goods and services being established in a system where they are allowed to fluctuate freely.

Private Ownership

The legal possession of assets, resources, or property by individuals or corporations rather than by the state or public entities.

Consumer Sovereignty

The concept that consumers' preferences and choices dictate the production and consumption of goods and services in an economy.