the cost function for a firm with a Cobb-Douglas production function y = x1ax2b can be written as...

the cost function for a firm with a Cobb-Douglas production function y = x₁^ax₂^b can be written as c(y) = Ky^1/(a+b).

a) Demonstrate that if a+b < 1 the firm’s long-run average and marginal cost functions must be increasing in y.

b) Demonstrate that if a+b = 1 the firm’s long-run average and marginal cost functions will not be increasing in y but instead will be constant.

Expert Solution

Rahul Sunny answered 4 hours ago

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