A Production Function Exhibits Constant Returns to Scale If a Twofold

question 170

Essay

A production function exhibits constant returns to scale if a twofold (threefold, etc.) increase in all inputs leads to a twofold (threefold, etc.) increase in output. For example, by doubling the use of capital and labor, the firm would exactly double its output.
a. What would the average and marginal cost curves look like under constant returns to scale? Explain.
b. Give an example of a production function that exhibits constant returns to scale.

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Definitions:

Insulin

A biochemical produced in the pancreas that helps regulate the amount of sugar in the blood by enabling tissues to absorb glucose.

ADH

Anti-Diuretic Hormone, a peptide hormone that regulates the body's retention of water by increasing water reabsorption in the kidneys.

Thyroid Hormone

A hormone produced by the thyroid gland, critical to the regulation of metabolism and energy.

TSH

Thyroid-Stimulating Hormone; a hormone produced by the pituitary gland that regulates the production of thyroid hormones and thus controls metabolism.