Evaluate whether the claims below are true or false. Do not forget to motivate your answer, credit depends on the quality of your argument (a simple "true" or "false" gives zero credit):

(a) A library uses labor (l) and machinery (k) to lend books. The number of books that can be lent for any combination of labor and capital is given by the production function f(l; k). The book lending technology is such that lending a book can be accomplished by using 1 minute of labor or machinery in any combination (for 1 example, 40 seconds labor and 20 second machine lends a book; 30 seconds labor and 30 seconds machine lends a book). Claim: The production function f(l; k) could have increasing returns to scale.

(b) Freja produces hand woven rugs in her garage. The marginal cost of production equals MC = 2q, where q is the number of rugs. When Freja produces 10 rugs, her total cost equals 400. Claim: If Freja raises production from 10 rugs to something slightly above 10 rugs, her average cost of production will go up.

Answer rating: 100% (QA)

3 KBs 1013 5 a One minute of any combination of labor and machine lends one book For example 40 seco... View the full answer