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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