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Problem 1 (Production functions, inputs are perfect complements) Fine epoxy is used to produce LEDs and other electrical components. To get stable, good qualities (durability,
Problem 1 (Production functions, inputs are perfect complements) Fine epoxy is used to produce LEDs and other electrical components. To get stable, good qualities (durability, resistance, adhesion) epoxy, the epoxy resins (R) are cured (\"linked\") to hardeners (H) like amines and acids, at the following xed proportion: to produce 1 unit of final epoxy, we need to cure 2 units of R with 1 unit of H. Let Q be the quantity of nal epoxy produced, 00?, H). Then, the production function of epoxy is given by: Q(R, H) = i x minCaR, MD, for some positive numbers a and b. a. What is a and b? b. If we want to produce 10 units of the nal product epoxy, what would be the least amount needed of R and H? c. Does the production function of epoxy exhibit increasing, constant, or decreasing returns to scale? (IRS, CR5, or DRS?) d. Draw a map of some isoquants of this production function! Problem 2 (Cost minimization, inputs are perfect substitutes) Chaya can protect his rice elds from pests using Spora super, a petrochemical pesticide, or Neem cake, an organic product. Chaya's production function is Q = .5' + 2N where Q is measured in acres and S and N are measured in units. a. In a diagram, measuring units of Spora super along the horizontal axis and units of neem cake along the vertical axis draw Chaya's isoquant when he wants to protect 4 acres of land from pests. b. What is the marginal product of Spora super? What is the marginal product of Neem cake? What is the marginal rate of technical substitution of Spora super for Neem cake? Suppose that the unit cost of Spora super is $10 while the unit cost of neem cake is $25. c. To protect his rice elds, does Chaya use one or both pesticides? In what amounts? What is Chaya's average cost of protecting one acre of land? d. In your diagram, add an isocost line and illustrate Chaya's cost minimizing combination of pesticides
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