A firm uses two inputs and, for all positive input prices, employs an input combination of the form where is a constant. Which production function could represent this technology?
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2 marks, −0.666666666666667MicroeconomicsProduction and returns to scaleProduction functions and the elasticity of substitutionModerateabout 3 min
DSE 2017 Question 14: Production and returns to scale
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A firm uses two inputs and, for all positive input prices, employs an input combination of the form (x,α x) where α>0 is a constant. Which production function could represent this 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 and, for all positive input prices, employs an input combination of the form (x,alpha x) where alpha>0 is a constant. Which production function could represent this technology?
Production and returns to scale has come up 92 times in 6 exams since 2007.
What this question tests
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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