1. The White Noise Corporation has estimated the following Cobb-Douglas production function using monthly observations for...

1. The White Noise Corporation has estimated the following Cobb-Douglas production function using monthly observations for the past two years:

ln Q = 2.773 + 0.20 ln K + 0.70 ln L + 0.70 ln N

where Q is the number of units of output, K is the number of units of capital, L is the number of units of labor, and N is the number of units of raw materials. With respect to the above results, answer the following sections when K = 50, L = 250, and N =870.

a. Q

b. Rewrite the estimated function in the form of a power function.

c. Find the marginal products of capital, labor, and raw materials

d. Find the value of the output elasticities of K, L, and N

e. Determine whether the returns to scale are increasing, decreasing, or constant

f. Suppose the price of capital is $1000 per unit, the price of labor is $700, and the price of raw materials is $200 per unit. This is an optimal combination of resources

g. What price would the company have to charge for the product to maximize profits

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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