What is a production function? What is meant by constant returns to scale? What is meant...

What is a production function? What is meant by constant returns to scale? What is meant by diminishing returns? How are factor prices determined in a competitive economy? How does a firm decide how many workers to hire and how much capital to rent? What factors would alter factor rewards and how? What is Euler’s theorem?

Expert Solution

Answer : Production function means that there is relationship between the quantity of output and different quantity of input of a firm in order to produce an output.

Answer : Constant returns to scale means that when an increase in input causes same proportional increase in an output Example : If firm has been increased an input by 15% , than output has been increased by 15%.

Answer : Decreasing return of scale means that when there is an increase in input causes less increase in an output. Example : If firm has been increased an input by 20% , than output has been increased by 12.5%

Answer : Factor price are determined in a competitive economy through total demand and total supply in an economy. It has been derived by an interection of demand and supply.

Answer : Firm hired labour to help them to produce an output. The amount of labour that a firm need depend on the amount of output that it want to produce . At the same time , its decision about how much to produce depends on its cost of production. The interection of marginal revenue product is equal to wage rate. Capital should be employed in a systematic process.

Answer : When in the production function says labor and capital has been employed and if factor of production are paid according to their marginal productivity the total factor of payment is equal to degree of homogeneity of the production function times output.

Rahul Sunny answered 2 years ago

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