Assess whether the following statements are true or false. motivate your answer (your argument should in...

Assess whether the following statements are true or false. motivate your answer

(your argument should in principle prove the claim or prove it wrong).

(1)Claim: As a firm output goal Q increases, a cost-minimizing firm will always

use more labor and more capital to achieve the output goal.

(2)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

Statement (1) is False

There are two factors of production

Labour
Capital

For cost minimisation or we can say profit maximization, firm selects the best combination of above two factors , so for increasing output goal instead of increasing both labour and capital firm need to select best combiantion of labour and capita for the specified goal. so above statement is false.

Statement (2) is True

Increasing scale to return means when amount of inputs or factors (labour and capital) are increased than output or production will increased more than amount of increase in inputs for example if amount of inputs are doubled than output increases by more than double but in the above statement as it is given that there is diminishing margianal return to labour and diminishing marginal return to capital so with every additional unit of labour and capital there will be less and less output produced, which is actually decreasing return to scale so above statement is true

Rahul Sunny answered 1 year ago

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