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A3 solutions

The document discusses various production functions and their returns to scale, including constant, increasing, and decreasing returns. It also covers marginal products of labor and capital, cost-minimizing quantities, and specific calculations for production outputs and costs. Additionally, it presents scenarios for different production technologies and their implications on labor and capital requirements.

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Muskan Jindal
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26 views2 pages

A3 solutions

The document discusses various production functions and their returns to scale, including constant, increasing, and decreasing returns. It also covers marginal products of labor and capital, cost-minimizing quantities, and specific calculations for production outputs and costs. Additionally, it presents scenarios for different production technologies and their implications on labor and capital requirements.

Uploaded by

Muskan Jindal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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1.

q = 3L + 2K exhibits
F(λK, λL)= 3 (λL)+2 (λK)= λ (3L+2K)= λ F(K, L),
So c. Constant returns to scale
2. q = (2L + 2K)1/2 exhibits
F(λK, λL)= (2λL + 2λK)1/2 = √λ (2L + 2K)1/2 < λ F(K, L) So, Decreasing returns to
scale
3. q = 3LK2 exhibits F(λK, λL)= 3 λL(λK)2= λ2 (3LK2)> λ F(K, L), so, Increasing returns
to scale
4. q = L1/3K1/3exhibits (Solve like previous questions)
a) Increasing returns to scale
b) Decreasing returns to scale
c) Constant returns to scale
d) Cannot be determined
5. For the production function q = 4L1/2 + 4K; MPK =4 so, MPK is constant, MPL=2/√L and
second derivative of MPL is negative; so, MPL is decreasing.
6. The marginal product of labour in the production of chips is 50 kg chips per hour. The
marginal rate of technical substitution of hours of labour for hours of machine capital
is 1/4. What is the marginal product of capital in kg per hour? (only write the no.)
……………………………………. (200)
MPL/MPK=MRTS, 50/MPK=1/4, MPK=200.
7. A firm can always trade three units of labour for one unit of capital and still keep
output constant. The production technology for this firm can most suitably
represented by
a. Cobb-Douglas production function
b. Leontief production function
c. Linear production function
d. None
8. A firm finds that it requires exactly two full-time workers to operate each piece of
machinery in the factory. The production technology for this firm can most suitably
represented by
a. Cobb-Douglas production function
b. Leontief production function
c. Linear production function
d. None
9. Suppose that a firm’s production function is q = 10L1/2K1/2. The cost of a unit of
labour is $20 and the cost of a unit of capital is $80. The firm is currently producing
100 units of output and has determined that the cost-minimizing quantities of labour
and capital respectively are (2 marks)
From MPL/MPK=w/r, it turns out that L=4K. Substituting this in production function
for q=100, and solving yields L*=20, K*=5.
a. 5, 20
b. 20, 5
c. 20, 10
d. 10, 20
10. The firm now wants to increase output to 140 units. If capital is fixed in the short run,
how much labour will the firm require? (Report only one place after decimal)
…………………………….. (39.2) (2 marks)
Solving 140=10 sqrt(L*5) yields L= 39.2
11. What will be the total cost of production corresponding to previous question?
……………………………… (1184) (2 Marks)
Cost=wL+rK= 20*39.2+80*5= 1184
The production function for a product is given by q = 100KL. If the price of capital is INR 120
per day and the price of labour INR 30 per day. What is the cost minimizing quantity of
Labour and Capital respectively for producing 1000 units of output? (report only two places
after decimal)
Solution is Similar to previous question.
12. L*=…………………………… (6.32) (2 Marks)
13. K*=……………………………. (1.58) (2 Marks)
14. what is the minimum cost of producing 1000 units of output in INR? (report only one
place after decimal) ………………………. (379.2) (2 Marks)

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