Suppose that the production function is y = min{K, 12), and let R and W be the prices of the two factors of production. (a) Does this production function exhibit diminishing marginal products of K and L? Show your work. (b) Does this production function exhibit constant, decreasing, or increasing returns to scale? Show your work. (c) Find the total cost function (from the cost minimization problem). Show your work. For the remainder of the problem you can assume that RW = 1. (d) Find the marginal cost as a function of y. Plot the marginal cost curve. (e) Find the average cost as a function of y. Plot the average cost curve. (f) Find the minimum efficient scale Is this a typical MC-AC diagram? Explain.
Suppose that the production function is y = min{K, 12), and let R and W be the prices of the two factors of production. (a) Does this production function exhibit diminishing marginal products of K and L? Show your work. (b) Does this production function exhibit constant, decreasing, or increasing returns to scale? Show your work. (c) Find the total cost function (from the cost minimization problem). Show your work. For the remainder of the problem you can assume that RW = 1. (d) Find the marginal cost as a function of y. Plot the marginal cost curve. (e) Find the average cost as a function of y. Plot the average cost curve. (f) Find the minimum efficient scale Is this a typical MC-AC diagram? Explain.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter21: Production And Costs
Section: Chapter Questions
Problem 11QP
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Transcribed Image Text:Suppose that the production function is y = min{K, 12), and let R and W be the prices of the two factors
of production.
(a) Does this production function exhibit diminishing marginal products of K and L? Show your work.
(b) Does this production function exhibit constant, decreasing, or increasing returns to scale? Show your
work.
(c) Find the total cost function (from the cost minimization problem). Show your work.
For the remainder of the problem you can assume that RW = 1.
(d) Find the marginal cost as a function of y. Plot the marginal cost curve.
(e) Find the average cost as a function of y. Plot the average cost curve.
(f) Find the minimum efficient scale Is this a typical MC-AC diagram? Explain.
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