Question: Consider the following CES production function: 1/Q=F(L,K)=[aL +bK ]. (a) Check whether this production function exhibits increasing return to scale, constant return to scale, or

Consider the following CES production function:

1/Q=F(L,K)=[aL +bK ].

(a) Check whether this production function exhibits increasing return to scale, constant return to scale, or decreasing return to scale.

(b) Find the elasticity of substitution of this CES production function.

(c) Find the elasticity of substitution of a Cobb-Douglas production function (e.g.,lnQ = lnA + alnK + blnL). How is the Cobb-Douglas production function related to the more general CES function? Explain.

(d) Derive the factor demand functions,L*(Q0, w, r)andK*(Q0, w, r).

(e) Suppose you estimate= 12, what is the market price in a long-run perfect competitive equilibrium?

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