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A firm uses two kinds of labor, low-skill and high-skill, for production of its output good y. Quantities of low-skill labor are called ql; quantities
A firm uses two kinds of labor, low-skill and high-skill, for production of its output good y. Quantities of low-skill labor are called ql; quantities of high-skilled labor are called qh. The firm's production function is y(ql, qh) = ql + 2 qh. (a) Write the equation for all combinations of quantities of the two input goods that produce output 20. And, write the equation for all combinations of quantities of the two input goods that produce output 40. (b) Determine whether the firm's production has increasing returns to scale, decreasing returns to scale, or constant returns to scale. Do this by directly checking what happens to the firm's output when ql and qh are each multiplied by a variable t, with t > 1. (c) Suppose the firm decided to produce an amount of output y, using only low-skilled labor. Find the amount of low-skilled labor needed to do that; it will be a function of y. (d) Suppose the firm decided to produce an amount of output y, using only high-skilled labor. Find the amount of high-skilled labor needed to do that; it will be a function of y. (e) Suppose that the wage of low-skilled workers
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