Consider the production function F(L,K) = L^2/3 K^2/3 . (f) Does this production function exhibit increasing,...

Consider the production function F(L,K) = L^2/3 K^2/3 .

(f) Does this production function exhibit increasing, decreasing or constant returns to scale? Explain.

(g) Find the total cost, average cost and marginal cost of producing y units of output. Is the average cost increasing or decreasing in y? Is the marginal cost higher or lower than the average cost?

Question 2 The production of magic chairs requires only two inputs: seats (S) and legs (L) (no other inputs are required as magic chairs assemble themselves). Each chair requires 1 seat and 4 legs. Thus the production function is given by F(S,L) = min{S, L/4}. 4 You may assume that seats, legs and magic chairs are infinitely divisible. (That is. it is possible to use 0.3 seat or 3.4 legs or produce 2.3 chairs.)

(a) Does this production function exhibit increasing, decreasing or constant returns to scale? Explain. (Hint: min{2x, 2y} = 2 min{x, y}.)

(b) Suppose seat costs $5 each while legs costs $1 each. Find the total cost, average cost and marginal cost of producing y magic chairs.

Expert Solution

Rahul Sunny answered 2 years ago

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