A firm uses two inputs, capital (K) & labour (L). Given the production function: Q(K.L) = (KL) a) Is this a long run or short run production function? Explain. If this is a short run production function, write down an example of a long run production function. If this is a long run production function, write down an example of a short run production function. b) What are the conditions that m must satisfy so that the production function exhibit increasing, constant or decreasing returns to scale? Explain. c) Calculate the marginal rate of technical substitution. d) Use the isoquant-isocost analysis and draw a graph to illustrate how firms decide the efficient method of production. You do not need label the axis with specific numbers.

A firm uses two inputs, capital (K) & labour (L). Given the production function: Q(K.L) = (KL) a) Is this a long run or short run production function? Explain. If this is a short run production function, write down an example of a long run production function. If this is a long run production function, write down an example of a short run production function. b) What are the conditions that m must satisfy so that the production function exhibit increasing, constant or decreasing returns to scale? Explain. c) Calculate the marginal rate of technical substitution. d) Use the isoquant-isocost analysis and draw a graph to illustrate how firms decide the efficient method of production. You do not need label the axis with specific numbers.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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