Suppose a new piece of computer software say a word processor with perfect speech recognition- can be created for a onetime cost of $100 million. Suppose that once it is created, copies of the software can be distributed at a cost of $1 each. 2.1 Production function If Y denotes the number of copies of the computer program produced and X denotes the amount spent on production, what is the production function; that is, the relation between Y and X? 2.2 Production function Make a graph of this production function. Does it exhibit increasing returns? Why or why not? Output, Y (millions) 100 80 50 60 60 40 40 20 20 Input, X (millions) 50 100 150 200 Suppose the firm charges a price of $20. How many copies does it have to sell in order to break even? What if the price is $100 per copy? Why does the scale of the market-the number of copies the firm could sell-matter? 2.3 Scale