Hypothetical Example of Olive Oil Production with Fixed Proportions and Constant Returns to Scale
A hypothetical olive oil production method illustrates a technology with fixed proportions and constant returns to scale. The required input ratio is three machines, one worker, and 80 kWh of energy to produce 50 liters of oil daily. This technology exhibits constant returns to scale, so doubling all inputs to six machines, two workers, and 160 kWh of energy doubles the output to 100 liters. The fixed-proportions nature is demonstrated by the fact that if a firm with six machines and two workers (producing 100 liters) were to add a third worker, output would remain at 100 liters because the inputs would no longer be in the required ratio.
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