Floppy Corp produces software using two inputs, large $(700$ MB$)$ discs, L$,$ and small

$(210$ MB$)$ minidiscs, S$.$ Its production function is given by Q $=$ L $+($S$/2)$ where Q is

output. MPL$=1$ and MPS$=1/2.$

A$)$ Does the production function exhibit constant, increasing, or decreasing returns to

scale? $(10$ marks$)$

B$)$ Draw isoquants for Q $=2$ and Q $=3.$ What is the firm$$s marginal rate of technical

substitution along those isoquants? Interpret that number.

C$)$ Suppose small disks cost $3$ dollars each and large disks cost $1$ dollar each. The Floppy

Corp would like to produce Q $=2$ at least cost. How many of each type of disk will

Floppy Corp use to produce Q $=2?$ Is the tangency condition at this allocation satisfied?

Why yes or why not?