Instruction: For both questions show your steps carefully

1. Consider the following production function: Q=KL , where Q is output, K is capital and L is labor. Suppose the unit price of labor (W) and Capital (r) are Birr 1 and 4 respectively. Based on this information, answer the following two questions.

a. What type of returns to scale does the production function exhibits? Why?

b. Which of the following expressions describe the MRTSLK?

2. Consider a hypothetical firm whose variable cost (VC) and Fixed cost (FC) functions are given by:

VC=4Q-16Q+20Q

FC = 100

Based on the above information, answer the following four questions.

a. What type of production period does the production function exhibits? Why?

b. At what level of output AVC is minimum?

c. At what level of output that the marginal cost of the firm equals the average variable cost?

d. Derive the marginal cost function of the firm?