9 Question 9The long run cost function for the production function F(L, K) = ALªK³ isc(q,w,r) = (4) a‡ß watßrats ((2)a+³ + (2)a‡³).1. Under what conditions on A, a, and ß does the cost function exhibit economies of scale?2. Under what conditions on A, a, and ß is c(\q, w, r) < \c(q, w, r) for λ > 1?3. What is the relationship between your answers for the previous parts? What do your resultssay about the relationship between a cost function exhibiting economies of scale and a costfunction exhibiting increasing returns to scale?4. Prove the relationship in general: that a cost function exhibits increasing returns to scaleif and only if it exhibits economies of scale. To do this, you should show the following twostatements:• If c(Ag) < Ac(g) for all q and all \, then ) < c(?) whenever q′ > q (hint: rememberthat λq > q since λ > 1).q• If there exists some › and q such that c(\q) > Ac(q), then there exists some q and q'such that AC(q) < AC(q') and q' > q.

Economies of scale refers to the pehnomena which describes a gradual decline in per unit costs of…

The long run cost function for the production function F(L, K) = ALºK³ is c(q, w,r) = ( 4 )a‡³ watßratš ((2)a+³ + (1)ats). 1. Under what conditions on A, a, and 3 does the cost function exhibit economies of scale? 2. Under what conditions on A, a, and ß is c(\q, w, r) < \c(q, w, r) for λ > 1? 3. What is the relationship between your answers for the previous parts? What do your results say about the relationship between a cost function exhibiting economies of scale and a cost

The long run cost function for the production function F(L, K) = ALºK³ is c(q, w,r) = ( 4 )a‡³ watßratš ((2)a+³ + (1)ats). 1. Under what conditions on A, a, and 3 does the cost function exhibit economies of scale? 2. Under what conditions on A, a, and ß is c(\q, w, r) < \c(q, w, r) for λ > 1? 3. What is the relationship between your answers for the previous parts? What do your results say about the relationship between a cost function exhibiting economies of scale and a cost

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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