A Production Function Exhibits Increasing Returns to Scale When You

question 100

Multiple Choice

A production function exhibits increasing returns to scale when you:

• A) double one input-you double the output.
• B) double each input-you double the output.
• C) double each input-you less than double the output.
• D) double each input-you more than double the output.
• E) hold inputs constant-you double the output.

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Definitions:

Cost of Capital

The average rate a firm pays its investors for the use of their funds adjusted for taxes and administrativecosts. Also called the WACC forweighted average cost of capital.Distinguish from the costs of individualcapital components that are the adjustedrates paid on debt, preferred stock, andcommon equity. The component costs are(weighted) averaged to get the WACC

Shareholder Wealth

The overall value and financial health perceived by the shareholders of a company, often judged by the price of the company's stock and dividends paid.

Exceeds Cost

This refers to when the expenses associated with a project or operation surpass the initially estimated costs.

Return on Project

The gain or loss generated by an investment relative to the amount of money invested in the project.