A firm uses two inputs to produce output. Greater use of both inputs increases output. Moreover, for any combination of positive input prices, the firm employs an input combination of the form where is a constant. Which of the following functions represents this firm's technology?
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A firm uses two inputs to produce output. Greater use of both inputs increases output. Moreover, for any combination of positive input prices, the firm employs an input combination of the form (x,α x) where α>0 is a constant. Which of the following functions represents this firm's technology? (A) f(x,y)=min {x^α,y} (B) f(x,y)=min {α x,y} (C) f(x,y)=min {x,α y} (D) f(x,y)=min {x,y^α}
Also written as: A firm uses two inputs to produce output. Greater use of both inputs increases output. Moreover, for any combination of positive input prices, the firm employs an input combination of the form (x,alpha x) where alpha>0 is a constant. Which of the following functions represents this firm's technology?
Production and returns to scale has come up 92 times in 6 exams since 2007.
This question is on Production functions and the elasticity of substitution, part of Production and returns to scale in Microeconomics.
Cobb-Douglas, CES and fixed-proportions technologies, and how easily inputs substitute.
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Question from the DSE 2011 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.