Refer to the graph below: У2 0 У The graph above illustrates a production set of a firm. (a) Which assumption(s) do(es) the production set violates? Explain. (b) Suppose the firm decided to scale all inputs up or down by some amount t≥0. What will happen to the level of output?

Refer to the graph below: У2 0 У The graph above illustrates a production set of a firm. (a) Which assumption(s) do(es) the production set violates? Explain. (b) Suppose the firm decided to scale all inputs up or down by some amount t≥0. What will happen to the level of output?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: The Cost Of Production

Section: Chapter Questions

Problem 3PA

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Question

Refer to the graph below:
y2
The graph above illustrates a production set of a firm.
(a) Which assumption(s) do(es) the production set violates? Explain.
(b) Suppose the firm decided to scale all inputs up or down by some amount t > 0. What will
happen to the level of output?

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Step 1: Define firm theory

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Step 2: Examine which assumption(s) does this production set violate

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Step 3: Examine what will happen if inputs are scaled up by positive values

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