Question
Consider the following CES production function: 1/Q=F(L,K)=[aL +bK ]. (a) Check whether this production function exhibits increasing return to scale, constant return to scale, or
Consider the following CES production function:
1/Q=F(L,K)=[aL +bK ].
(a) Check whether this production function exhibits increasing return to scale, constant return to scale, or decreasing return to scale.
(b) Find the elasticity of substitution of this CES production function.
(c) Find the elasticity of substitution of a Cobb-Douglas production function (e.g.,lnQ = lnA + alnK + blnL). How is the Cobb-Douglas production function related to the more general CES function? Explain.
(d) Derive the factor demand functions,L*(Q0, w, r)andK*(Q0, w, r).
(e) Suppose you estimate= 12, what is the market price in a long-run perfect competitive equilibrium?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Capitalist Political Economy Thinkers And Theories
Authors: Heather Whiteside
1st Edition
0429888031, 9780429888038
