Now, let f() be a general production function (i.e., not necessarily a Cobb- Douglas one). (d) Suppose f(-) always exhibits increasing returns to scale. Show that there is no solution to the firm's profit maximization problem (You can assume the firm is a price-taking firm). 2. Consider the production function: f(K,L) = K*L%. Let w and r denote the price of labor and capital. (a) Find the cost minimizing input bundle as a function of w, r, and q. Find the cost function. (b) Suppose two countries, A and B, have the access to the same production technology f(-) given above. Firms in both countries are cost-minimizers. Yet, the firm in country A uses relatively more labor and less capital than the firm in country B to produce the same level of output. What will ex- plain this?
Now, let f() be a general production function (i.e., not necessarily a Cobb- Douglas one). (d) Suppose f(-) always exhibits increasing returns to scale. Show that there is no solution to the firm's profit maximization problem (You can assume the firm is a price-taking firm). 2. Consider the production function: f(K,L) = K*L%. Let w and r denote the price of labor and capital. (a) Find the cost minimizing input bundle as a function of w, r, and q. Find the cost function. (b) Suppose two countries, A and B, have the access to the same production technology f(-) given above. Firms in both countries are cost-minimizers. Yet, the firm in country A uses relatively more labor and less capital than the firm in country B to produce the same level of output. What will ex- plain this?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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