Assume Firm Y's production function is given by the following Cobb Douglas equation:

Q = 0.5 x L0.6 x K0.5

Where L denotes labor and K denotes capital.

a. Does the production function exhibit increasing, decreasing or constant returns to scale? Explain.

b. If labor hours increase by 10%, what is the percentage change in output? Explain.

c. If capital decreases by 10%, what is the percentage change in output? Explain.

d. If the number of labor hours increases by 10% and the number of hours of capital used decreases by 10%, what is the percentage change in output?

Answer rating: 100% (QA)

a Let us double inputs to get new Q 05 x 2L06 x 2K05 211 x 05 x L0... View the full answer