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Consider a firm with the following production function F(K, L) = K4L3/4 Suppose the price of one unit of K is 1 is and
Consider a firm with the following production function F(K, L) = K4L3/4 Suppose the price of one unit of K is 1 is and the price of one unit of L is 2. Suppose moreover that the firm has e units of K and e units of L. (a) (8 points) Prove that the production function is homogeneous of degree one. (b) (12 points) Prove that the production function is concave. (c) (15 points) What is the maximum amount of output the firm can produce?
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ANSWER a To prove that the production function FK L KVA34 is homogeneous of degree one we need to show that it satisfies the property of constant returns to scale ie if we multiply both inputs K and L ...
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Microeconomics and Behavior
Authors: Robert Frank
9th edition
9780077723750, 78021693, 77723759, 978-0078021695
