Author Question: In Example 6.5 in the book, the authors use the observed production data from the U.S. carpet ... (Read 68 times)

Frost2351 · **on:** Jul 1, 2018

In Example 6.5 in the book, the authors use the observed production data from the U.S. carpet industry to show that small firms likely have constant returns to scale and that large firms likely have increasing returns to scale.

Are returns to scale in this industry likely to continue increasing as these firms become even larger? A) Yes, the marginal products of labor and capital are known to be positive at all levels of output in the U.S. carpet industry, which implies continued increasing returns to scale.
B) Yes, increasing returns are always observed in other countries that produce carpeting on large scale.
C) No, the authors predict that returns to scale in carpet production will likely decline at some point.
D) The authors do not provide any comments on this issue.

Question 2

Assume that a firm's marginal cost is 10 and the elasticity of demand is -2. We can conclude that the firm's profit maximizing price is approximately

A) 20.
B) 5.
C) 10.
D) The answer cannot be determined without additional information.