**1. Imagine an economy with a constant returns to scale production function. Answer the following:****(a)** Suppose this economy has 3000 units of physical capital, with workers having 200 years of education, and they work 5000 hours. Their output is worth $10,000. Now imagine the same economy has 6000 units of physical capital, 400 years of education, and the workers work 10,000 hours. What is their output now?**(b)** Suppose this economy has 3000 units of physical capital, with workers having 200 years of education, and they work 5000 hours. Their output is worth $10,000. Now, their physical capital grows to 6000 units, but the other two inputs remain the same. Provide a range for what the economy’s output might be. That is, what is the lower bound, and what is the upper bound for this economy’s output?**(c)** Suppose this economy has 3000 units of physical capital, with workers having 200 years of education, and they work 5000 hours. Their output is worth $10,000. Call this Country A. Now consider another economy with 1500 units of physical capital, with workers having 100 years of education, and they work 2500 hours. Their output is worth $5,000. Call this Country B. In which economy would an extra unit of physical capital more positively affect output?

Constant returns to scale refers to that technology /production function in which the output changes…

1. Imagine an economy with a constant returns to scale production function. Answer the following: (a) Suppose this economy has 3000 units of physical capital, with workers having 200 years of education, and they work 5000 hours. Their output is worth $10,000. Now imagine the same economy has 6000 units of physical capital, 400 years of education, and the workers work 10000 hours. What is their output now? b) Suppose this economy has 3000 units of physical capital, with workers having 200

1. Imagine an economy with a constant returns to scale production function. Answer the following: (a) Suppose this economy has 3000 units of physical capital, with workers having 200 years of education, and they work 5000 hours. Their output is worth $10,000. Now imagine the same economy has 6000 units of physical capital, 400 years of education, and the workers work 10000 hours. What is their output now? b) Suppose this economy has 3000 units of physical capital, with workers having 200

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 3. Do the following functions exhibit increasing, constant, or decreasing returns to scale? Explain your answers. a. q = aL + bK, where a and b are positive constants. b. The production function Q=2M0.5K0.5L0.5, where M is materials, K is capital and L is labour. This production function has three inputs: M, K and L. c. q = 2+3L+2K d. q = 0.5L¹/¹K3/2 |
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