Question
Assume Firm Y's production function is given by the following Cobb Douglas equation: Q = 0.5 x L0.6 x K0.5 Where L denotes labor and
Assume Firm Y's production function is given by the following Cobb Douglas equation:
Q = 0.5 x L0.6 x K0.5
Where L denotes labor and K denotes capital.
a. Does the production function exhibit increasing, decreasing or constant returns to scale? Explain.
b. If labor hours increase by 10%, what is the percentage change in output? Explain.
c. If capital decreases by 10%, what is the percentage change in output? Explain.
d. If the number of labor hours increases by 10% and the number of hours of capital used decreases by 10%, what is the percentage change in output?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a Let us double inputs to get new Q 05 x 2L06 x 2K05 211 x 05 x L0...
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Mathematics for Economics and Business
Authors: Ian Jacques
9th edition
129219166X, 9781292191706 , 978-1292191669
