Suppose that a firm can hire a unit of labor for $5 per hour and a unit of capital for $10 per hour regardless of how rmany units of labor or capital…

Suppose that a firm can hire a unit of labor for $5 per hour and a unit of capital for $10 per hour regardless of how rmany units of labor or capital they hire. Initially, the firm is hiring 8 units of labor and 8 units of capital each hour and is producing 60 units of output each hour. The firm then decides to cut all of its inputs in half. When they do so, they end up producing 40 units of output per hour. Over this range of output, the firm is experiencing economies of scale. Is this true or false? Why is this false? What is economies of scale?

 
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