Question: Problem 1: Perfect Substitutes Production Function Consider the following perfect substitutes production function: Yt = akt + BLt (a) Does this production function exhibit

Problem 1: Perfect Substitutes Production Function Consider the following perfect substitutes production function: Yt = akt + BLt (a) Does this production function exhibit increasing, decreasing, or constant returns to scale? (b) Are there increasing returns to capital? labor? Be clear about any assumptions you make. (c) Does this production function exhibit diminishing marginal returns to capital? labor? Be clear about any assumptions you make. (d) Set up the firm's maximization problem. Be sure to indicate which variables the firm chooses. (e) What is the marginal product of capital? What is the marginal product of labor? (f) Assuming the supply of capital and labor are fixed, what is the general equilibrium solu- tion of the model? What are the values of each endogenous variable?

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