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Suppose that your production function is given by: Y = ( 1 x 1 + 2 x 2 ) 1/ For 1. a) Calculate the
Suppose that your production function is given by: Y = (1x1 + 2x2 )1/ For 1.
a) Calculate the TRS1,2.
b) Calculate the elasticity of substitution (if you are having trouble with the idea of TRS1,2/(x1/x2) then substitute x1/x2 with in the TRS1,2, calculate TRS1,2/ and then substitute with x1/x2 in the end).
c) Now suppose that 1. What happens to the elasticity of substitution? If you were to draw the isoquants you would see the isoquants would start approximating a regularly used production function, which one?
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