From the following which production function exhibits increasing returns to scale?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → $f(tx, ty)> t.f(x, y)$
$f(tx_1, tx_2) = t.f (x_1, x_2)$ = Constant Returns to Scale
$f(tx_1, tx_2) < t.f (x_1, x_2)$ = Decreasing Returns to Scale
$f(tx_1, tx_2) > t.f (x_1, x_2)$ = Increasing Returns to Scale