Question

48. If fixed costs increase to $35 in the total cost relationship, determine the effects of...

48. If fixed costs increase to $35 in the total cost relationship, determine the effects of such an increase on the profit-maximizing output level and total profits.

a. Output is unchanged; Profits fall to 80

b. Output increases; Profits fall to 77.5

c. Output is unchanged; Profits fall to 77.5

d. Output is unchanged; Profits are unchanged

49. What will happen the returns to scale if production function moves from Q = 60 L0.1K0.1 to Q = 100 L0.1K0.1?

a. The value will be constant returns to scale.

b. The value will change to decreasing returns to scale.

c. Insufficient information.

d. There will be no effect on the value for returns to scale.

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Homework Answers

Answer #1

48 is incomplete

49 is answered below

49.

(D) There will be no effect on the value for returns to scale

Reason: Since the sum of powers of the factors of production remains unchanged in the two production functions: 0.1+0.1 = 0.2, which is less than 1, both the production functions will have decreasing returns to scale.

The change in the value of parameter A from 60 to 100 does not affect returns to scale

Thus, value of returns to scale will remain unchanged at decreasing returns.

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