Consider a firm with the production function, Q = K/4L/2. Assume that the price of one...

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Consider a firm with the production function, Q = K¹/4L¹/2. Assume that the price of one unit of capital (K) is r, the price of one unit of labor (L) is w, and the firm may sell each unit of output at price, p. a. Does this firm have decreasing, constant, or increasing returns to scale? (2 points) b. Does the firm have a convex production function, i.e., does the firms production function exhibit a diminishing technical rate of substitution? (2 points) Suppose that the firm owns a fixed stock of K = 64 units of capital. It must pay r = 1 per unit of capital if the firm operates, Q> 0, but can avoid this cost if it chooses to shut down, Q=0. Assume that w=1 and p=6. c. Determine the profit maximizing level of output. (4 points) Consider a firm with the production function, Q = K¹/4L¹/2. Assume that the price of one unit of capital (K) is r, the price of one unit of labor (L) is w, and the firm may sell each unit of output at price, p. a. Does this firm have decreasing, constant, or increasing returns to scale? (2 points) b. Does the firm have a convex production function, i.e., does the firms production function exhibit a diminishing technical rate of substitution? (2 points) Suppose that the firm owns a fixed stock of K = 64 units of capital. It must pay r = 1 per unit of capital if the firm operates, Q> 0, but can avoid this cost if it chooses to shut down, Q=0. Assume that w=1 and p=6. c. Determine the profit maximizing level of output. (4 points) Consider a firm with the production function, Q = K¹/4L¹/2. Assume that the price of one unit of capital (K) is r, the price of one unit of labor (L) is w, and the firm may sell each unit of output at price, p. a. Does this firm have decreasing, constant, or increasing returns to scale? (2 points) b. Does the firm have a convex production function, i.e., does the firms production function exhibit a diminishing technical rate of substitution? (2 points) Suppose that the firm owns a fixed stock of K = 64 units of capital. It must pay r = 1 per unit of capital if the firm operates, Q> 0, but can avoid this cost if it chooses to shut down, Q=0. Assume that w=1 and p=6. c. Determine the profit maximizing level of output. (4 points)

Answer rating: 100% (QA)

a This firm exhibits decreasing returns to scale If we double ... View the full answer