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

question 3

Multiple Choice

A firm has a production function f(x, y) = 1.40(x^0.60 +y^0.60) ² whenever x > 0 and y > 0.When the amounts of both inputs are positive, this firm has

• A)increasing returns to scale.
• B)decreasing returns to scale.
• C)constant returns to scale.
• D)increasing returns to scale if x + y > 1 and decreasing returns to scale otherwise.
• 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:

Fixed Cost

Expenses that do not change in proportion to the level of production or business activity.

Mixed Cost

A cost that contains both variable and fixed cost elements, changing in total with activity level but not proportionately.

Manufacturing Cost

The total cost incurred by a company to produce goods, including direct materials, direct labor, and manufacturing overhead expenses.

Cost Behavior Analysis

The study of how specific costs respond to changes in the level of business activity.