Question

A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function:
C = (L^0.5)(M^0.75)
This production function exhibits
A. no clear pattern of returns to scale.
B. constant returns to scale for all output levels.
C. increasing returns to scale for all output levels.
D. decreasing returns to scale for all output levels.

Answer 1

The statement "increasing return to scale for all types of output levels" is correct.

Given that,

• C = (L^0.5)(M^0.75)

In the case when both inputs should be doubled so the following should be a new production function:

C* = (2L)^0.5(2M)^0.75

= 2^0.5 2^0.75 × L^0.5M^0.75

= 21.25 x L0.5M0.75

= 2.38 × C

C* ÷ C = 2.38 > 2

If both the input should be doubled and more than the double output so it an increasing return to scale.

Therefore we can conclude that The statement "increasing return to scale for all types of output levels" is correct.

Learn more about the return to scale here: brainly.com/question/13073721