A manufacturer named Kjell is facing the following product function.1x = f(N, K) = 100Nº.8K0,2The price for labor is NOK 500 per unit. The price for capital is NOK 125 per unit.a) Does the product function provide constant, increasing, or decreasing scale benefits?b) Kjell wants to produce 400 cakes at the lowest possible cost. How much labor anddoes he need capital? What will be the cost?c) The bank is not impressed by Kjell's production technology. He therefore receives a loan ofonly NOK 1,875. How many cakes can Kjell produce a maximum of NOK 1,875.d) Make a factor diagram (N, K). Note Kjell's adaptation from problem b) and c). Drawthe isocost lines and the substituent template.e) A short-term strike leads to the price of labor rising to NOK 750. Kjell still hasonly NOK 1,875. How will Kjell change his adaptation from c)?How many cakesdoes he produce now?f) Kjell eventually starts making money, and wants to expand production to 650cakes. What will be Kjell's new adaptation? What will be the cost?g) Kjell is long-suffering after the strike, and therefore wants to keep the number of units of labordown to 2 units. Kjell still wants to produce 650 cakes. How much does Kjell loseon being long-suffering?h) Given the result in 2g. What will happen to manufacturers who move far away fromsubstitute?

x = 100N0.8K0.2 When both inputs are doubled, new production function is x* = 100 x (2N)0.8(2K)0.2 =…

a) Does the product function provide constant, increasing, or decreasing scale benefits? b) Kjell wants to produce 400 cakes at the lowest possible cost. How much labor and does he need capital? What will be the cost? c) The bank is not impressed by Kjell's production technology. He therefore receives a loan of only NOK 1,875. How many cakes can Kjell produce a maximum of NOK 1,875.