22. Suppose a firm has a production technology given by the Cobb-Douglas production function: Q=f(L,K) = AL¤ KB with a + ß < 1 and for all A, a, ß > 0, where L and K represent labour and capital respectively and A is technology. (a) Does this production function exhibit constant, increasing or decreasing returns to scale? Explain how you would be able to see this on an isoquant graph. (b) Set out the unconstrained profit maximisation problem (assuming input prices are w for labour and r for capital and the output price is p) and then solve for the unconditional input demand functions for capital and labour and find the firm's supply function (c) Now set up the cost minimisation problem and solve for the conditional labour and capital demands. What is the difference between the unconditional input demand functions from part (b) and the conditional input demand functions you have just derived?

22. Suppose a firm has a production technology given by the Cobb-Douglas production function: Q=f(L,K) = AL¤ KB with a + ß < 1 and for all A, a, ß > 0, where L and K represent labour and capital respectively and A is technology. (a) Does this production function exhibit constant, increasing or decreasing returns to scale? Explain how you would be able to see this on an isoquant graph. (b) Set out the unconstrained profit maximisation problem (assuming input prices are w for labour and r for capital and the output price is p) and then solve for the unconditional input demand functions for capital and labour and find the firm's supply function (c) Now set up the cost minimisation problem and solve for the conditional labour and capital demands. What is the difference between the unconditional input demand functions from part (b) and the conditional input demand functions you have just derived?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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