Why production function exhibits external returns to scale

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Assignment:

Suppose that production of a unit of good X in a location requires 10 5+?????? units of labor and ?????? units of electric power, where ???? is total output of industry X in that location and b>0.

a) Explain why this production function exhibits external returns to scale and will tend to lead to clustering of production.

b) Suppose that cheaper power becomes available in another location. What will determine whether some firms choose to leave for the cheaper power location? Explain?

Reference no: EM133270603

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