A firm uses two inputs, capital (K) and labor (L), to produce outputq. Assume that the marginal product of labor and the marginal product of
A firm uses two inputs, capital (K) and labor (L), to produce outputq. Assume that the marginal product of labor and the marginal product of capital are always greater than zero. The figure below displays two isoquants from the firm's production function. The bundle (L=1,K=1) falls on theq=1isoquant (i.e. all bundles on the curve result in one unit of output). The bundle (L=3,K=2) falls on theq=2 isoquant. Given this information, which statement below is true?
a) The production function exhibits constant returns to scale
b) The production function exhibits increasing returns to scale
c) The production function exhibits decreasing returns to scale
d) There is not enough information available to say which of the above statements is true
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