Which of the Following Cost Functions Exhibits Economies of Scope

question 124

Multiple Choice

Which of the following cost functions exhibits economies of scope when three (3) units of good one and two (2) units of good two are produced?

• A) C = 50 − 5Q₁Q₂ + 0.5Q₁² + Q₂².
• B) C = 10 + 4Q₁Q₂ + Q₁² + Q₂².
• C) C = 15 + 5Q₁Q₂ + 2Q₁ + 4Q₂.
• D) C = 5 + Q₁Q₂ + Q₁²Q₂².

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Definitions:

Long-Run Average Total Cost

The average cost per unit of output incurred when all factors of production, including capital, are variable, considered over a sufficient period for all adjustments to be made.

Decreasing Returns to Scale

Decreasing returns to scale occur when increasing the inputs used in production results in a less than proportional increase in output.

Total Cost

The aggregate of expenses involved in creating goods or delivering services, covering both stable and changeable costs.

Producing Bagels

The process of making bagels, involving mixing, shaping, boiling, and baking dough in a manner specific to this type of bread.