A Production Function Exhibits Decreasing Returns to Scale If a Twofold

question 173

Essay

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

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