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A firm produces output using the technology: Q = 2.5K 0.33 L 0.5 where capital, K, is measured in machine-hours, labor, L, is measured in
A firm produces output using the technology:
Q = 2.5K0.33L0.5
where capital, K, is measured in machine-hours, labor, L, is measured in person-hours, and Q denotes the yearly output. The hourly wage rate in the United States WL = $30, and the hourly rental rate of capital (IN EFFECT CAPITAL COSTS $2 PER MACHINE HOUR) is WK = 2 and the Price is $12.
Please show the work by plugging in the values. I do not understand it when I don't see how the answer came up. Please.
- Does this production function display increasing returns to scale, constant returns to scale or decreasing returns to scale (hintuse labor). Please show how you arrived at this conclusion (this requires a mathematical answer that you must show).
- Compute the marginal products of labor and capital. Show that there are diminishing, but positive, returns to the labor input.
- Suppose that the firm has signed a contract to rent K = 4096 machine hours over the course of the year. Determine the equilibrium level of Labor.
- If the wage level is raised to $54.4, (given the same MPL in the US), what is the equilibrium level of Labor demanded.
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