You are given the production function: Q (K,L) = 4K^ 0.6 L ^0.4

question 1

Does the above function exhibit increasing , decreasing, or constant returns to scale? Illustrate why and explain what it means.

Question 2

The current world production of oil is 250 million barrels per day and the current world price of oil is N$ 726.10per barrel. The price elasticity of demand () is -0.2 and the elasticity of supply () is 0.3. Kati Investment is planning to enter the world oil market with a daily production of 11 million barrels of oil per day. For simplicity, assume that the supply and demand curves are linear.

Calculate the market price and total supply of oil after shiwa investment has enter the world oil market and explain why the total supply of oil increase with less that 11 million