Transportation system analysis

Problem 2: Gainesville airline's production function is given by a Cobb-Douglas form: Y = AL" KB, a, B >O where: Y = number of passengers carried per year A = coefficient L = number of pilots (labor) K = number of aircraft (capital) Suppose that the annual wage for each pilot is p, , and the "price" of each aircraft (amortized annual cost) is PK . 1. Derive the output cost function for the Gainesville airline. 2. Calculate the average and marginal cost functions, and discuss the condition when economies of scale exist