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The production process of a good combines capital and labor in fixed proportions; 3 units of labor are combined with one unit of capital. Math-
The production process of a good combines capital and labor in fixed proportions; 3 units of labor are combined with one unit of capital. Math- ematically, the production process can be represented as L 9 = min K, 3 where, q. K and & denote the usual variables while the notation 'min' tells that the function takes the minimum of its two arguments. (a) Draw the isoquants for q = 5 and for q = 10. (b) What can you say about the substitutability between capital and labor in this production? (c) What do you know about returns to scale of this production process? (d) Suppose the wage rate (w) and rental rate (r) cach equals 10. Find the equation of the expansion path and show graphically. (e) Determine the expression for the cost function of this firm. (f) If the rental rate remains constant and the wage rate doubles, what happens to the expansion path? cost function
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