A Firm Has a Production Function F(x, Y) = 2(x⁰

question 30

Multiple Choice

A firm has a production function f(x, y) = 2(x^0.90 + y^0.90) ⁵ 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) increasing returns to scale.
• C) decreasing returns to scale.
• D) constant 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:

Residual Dividend Policy

A strategy where dividends are based on the earnings left over after all project capital needs are met.

Debt-Equity Ratio

The ratio that measures the relative proportion of shareholders' equity and debt used to finance a company's assets.

After-Tax Earnings

The amount of net income a firm has after all taxes have been paid, representing the company's profitability.

Retained Earnings

Profits that a company keeps or retains rather than distributing to shareholders as dividends, often used for reinvestment.