Assess whether the following statements are true or false. Do not forget to motivate your answer....

Assess whether the following statements are true or false. Do not forget to motivate your answer.

(a)Suppose that when the price of labor is l = 10 and the price of capital is c = 5, then the minimum cost of producing 10 units of output is 200 dollars. Claim: If the price of labor drops to l = 8, then the minimum cost of producing 10 units will be strictly below 200 dollars (that is, less than 200, not equal to 200)

(b)Claim: If a production function has diminishing marginal product of labor and diminishing marginal product of capital, then that production function cannot have increasing returns to scale.

Expert Solution

B)

True ! Since all the inputs entered in the production function have diminishing returns ( increase in one unit of a input , reduce the output ) then together we cannot have increasing returns to scale. Increasing both the inputs together will decrease the overall output

Rahul Sunny answered 2 years ago

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