A firm discovers that when it uses K units of capital and L…
A firm discovers that when it uses K units of capital and L units of labor it is able to produce q=K3/4L1/4 units of output. Assume w=4 and r=1. (a) Does the production function (q=K3/4L1/4) exhibit constant, increasing or decreasing returns to scale and why? (3pts) (b) The firm currently operates with KSR=5 units of capital and wants to produce qSR=100 units of output. How much labor does the firm need to hire and what is the total cost of producing the 100 units? (10 pts) (c) What inputs would the firm use in the long run? What would the cost be? (16 pts)
Read Details