firm has a Cobb-Douglas production function q = f(K, L) = KαL 1−α and faces wages, w, and rental rate of capital, r. 1. Does this production function exhibit increasing, decreasing, or constant returns to scale? 2. Find the short-run cost curve, C(q), as a function of q and the parameters. 3. Assume that K = 10, r = 1.5, w = 6, and α = 2/3. Derive expressions for MC, VC, FC, ATC, AVC, and AFC. Plot MC, ATC, AVC, and AFC, all on the same graph. 4. Assume that K = 10, r = 1.5, w = 6, and α = 2/3. Assume now that we know the market price is p = 18, which is fixed, and we are still operating in the short-run. What is the profit-maximizing choice of q? 5. Solve for profits, π, as a function of market price, p (and the model parameters). Then, assume as we did in subpart 3 that K = 10, r = 1.5, w = 6, and α = 2/3. Will profits ever be negative? If so, find the price range at which profits are negative
A firm has a Cobb-Douglas production function q = f(K, L) = KαL 1−α and faces wages, w, and rental rate of capital, r. 1. Does this production function exhibit increasing, decreasing, or constant returns to scale? 2. Find the short-run cost curve, C(q), as a function of q and the parameters. 3. Assume that K = 10, r = 1.5, w = 6, and α = 2/3. Derive expressions for MC, VC, FC,
![](/static/compass_v2/shared-icons/check-mark.png)
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)