Suppose a firm's production function can be specified as Q = 10KL.This firm's cost function exhibits

a. economies of scale

b. diseconomies of scale

c. neither diseconomies nor economies of scale.

d. economies of scale for output levels less than some level, Q1= 1/4, and diseconomies of scale thereafter.

e. we cannot determine based on the given information

 

Option A.

Step-by-step explanation

For economies of scale, as the units output increases, the cost of production or the costs units reduces at each level of production.So basing on the equation given, the unit output Q will continue to increase despite any attempt to reduce the capital(K) or labor(K) as the main factors of production.For instance,if we reduce labor(K),it means as labor costs reduces, capital(K) will make it possible for the output(Q) to increase,the vice versa is the same because the sign between 10,K,L is a multiplication. So Regardless of a reduction in K, value L will automatically make Q to increase,10*L*K_{at a reducing rate}.