Suppose that we have a technology with decreasing returns to scale and two firms that can use this technology. Is it more efficient that one firm use up all factors of production in the economy (capital, labor etc.) or are we better off dividing inputs equally among the two firms? What if there are increasing returns to scale? Constant returns to scale? Try to provide a general answer that does not depend on specific assumptions about the production function.
Suppose that we have a technology with decreasing returns to scale and two firms that can use this technology. Is it more efficient that one firm use up all factors of production in the economy (capital, labor etc.) or are we better off dividing inputs equally among the two firms? What if there are increasing returns to scale? Constant returns to scale? Try to provide a general answer that does not depend on specific assumptions about the production function.
Chapter9: Production Functions
Section: Chapter Questions
Problem 9.2P
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![Suppose that we have a technology with decreasing returns to scale and two firms that can use
this technology. Is it more efficient that one firm use up all factors of production in the economy
(capital, labor etc.) or are we better off dividing inputs equally among the two firms? What if
there are increasing returns to scale? Constant returns to scale? Try to provide a general answer
that does not depend on specific assumptions about the production function.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1a49b22d-c2e7-40c7-ba9f-f03570a2f6b8%2F66e2b32f-d2ea-443b-b801-c632b2db4962%2F6zp7cj_processed.png&w=3840&q=75)
Transcribed Image Text:Suppose that we have a technology with decreasing returns to scale and two firms that can use
this technology. Is it more efficient that one firm use up all factors of production in the economy
(capital, labor etc.) or are we better off dividing inputs equally among the two firms? What if
there are increasing returns to scale? Constant returns to scale? Try to provide a general answer
that does not depend on specific assumptions about the production function.
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