1. Extreme Biking, Inc., assembles high-end extreme mountain bicycles at a plant in Lexington, Massachusetts. The plant uses labor (L) and capital (K) in an assembly line process to produce output (Q) where:

Q

= 0.01L1/2K1/2

MPL=0.005K^1/2/L^1/2

MPK=0.005L^1/2/K^1/2

A.

Calculate how many units of output can be produced with 25 units of labor and 400 units of capital, and with 225 units of labor and 3,600 units of capital. Are returns to scale increasing, constant, or diminishing?

B.

Calculate the change in the marginal product of labor as labor grows from 25 to 50 units, holding capital constant at 400 units. Similarly, calculate the change in the marginal product of capital as capital grows from 400 to 800 units, holding labor constant at 25 units. Are returns to each factor increasing, constant, or diminishing?