Answered: Production Function. Consider the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Production Function. Consider the Cobb-Douglas production function discussed in class:
F(K, L) = AK1/3 L2/3. Suppose that parameters are initially A = 1, K = 150, and L = 10.

c) Write the equations for w and r and calculate their values. Briefly explain where these
equations come from and what they mean.

Expert Solution

Step 1

Production function refers to a mathematical expression which states those capital-labor combinations which lead to maximum output. Such functions are usually of the form:

$F (K, L) = A K^{α} L^{β}$

where, A is technology, K is capital, L is labor, $α$ is output elasticity of capital and $β$ is output elasticity of labor.

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