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A competitive firm uses three factors of production. Its production function is a=f(x,y,z)=(2x+y)1/2z1/2. The input prices are wx=$1,wy=$2, and wz=$3. a. Does this firm have
A competitive firm uses three factors of production. Its production function is a=f(x,y,z)=(2x+y)1/2z1/2. The input prices are wx=$1,wy=$2, and wz=$3. a. Does this firm have increasing, decreasing, or constant returns to scale? Show or explain. (2 points) b. The firm wants to make 100 units of a. What inputs should it choose? (Hint: what is the relationship between x and y ?) Find the general cost function given the input prices. (5 points) c. If the input price of y is reduced to $0.5, what happens to production costs? Explain ( 2 points)
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