Question: Suppose that the production function zF K N exhibits increasing returns

Suppose that the production function zF(K, N) exhibits increasing returns to scale, to the extent that the marginal product of labor increases when the quantity of labor input increases.
(a) Given this production function, what will be the representative firm's demand for labor?
(b) What problems do you see this presenting; for example, if we try to build a competitive equilibrium model with increasing returns to-scale production?

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  • CreatedDecember 05, 2014
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