Question

Question 1: Tim Hortons has the following production function, q = K^0.25 L^0.25,

(a) Show formally whether this production function has increasing, decreasing, or constant returns to scale.

(b) Calculate MPL, MPK, and MRTS_LK.

(c) If input prices are w=1 and r=1, calculate Tim Hortons’ cost function.

(d) Suppose the production function changes to q = 2K^0.25L^0.25. What is this an example of?

- Thank you

Answer 1