Question
3. Duane breeds parrots for a living. He has discovered that the production function for parrot chicks (Q) is: Q=K0.5 p0.5 where K is
3. Duane breeds parrots for a living. He has discovered that the production function for parrot chicks (Q) is: Q=K0.5 p0.5 where K is capital (for example nest boxes, cages and the like) and F is parrot food. The price of K is $8 and the price of F is $2. (a) What type of production function is this? Explain. (5) (b) Does this production function exhibit constant, increasing or decreasing returns to scale? Provide a graph of the function using Excel. (5) (c) Find the marginal products of capital and food. (5) (d) Suppose that Duane wants 144 parrot chicks, how much K and F should be employed to minimise costs. What is the cost of producing 144 parrot chicks? (5)
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